
How Andreessen Horowitz Is Disrupting Silicon Valley - pkallberg
https://medium.com/@petersimsie/how-andreessen-horowitz-is-disrupting-silicon-valley-208041d6375d
======
jmduke
I'll be honest -- my first impression after reading this piece was to research
Peter Sims and figure out his connection to a16z, since my gut reaction was
that blatant puff pieces usually have some sort of connection hidden below the
surface. (I was unable to find anything.)

Sims brings up the following point about VC returns:

 _> The predominant old way of thinking about venture capital is that you: a)
build up a great brand and reputation with a large portfolio of investments,
b) hire partners who have individually strong brands of their own, and c)
collect hefty management fees on each fund. The industry standard is a 2–2.5%
yearly “management” fee, a figure that gets pretty large on a billion dollar
fund. And, in my experience, not surprisingly, the senior people get a
disproportionate slice of that management fee. At the same time, the venture
capital industry has been a glaringly poor-performing asset management group,
consistently underperforming the S&P 500. (For more detail on the struggles
within the VC industry, a recent article on the Harvard Business Review Blog
by Diane Mulcahy, a senior fellow at the Kauffman Foundation, entitled
“Venture Capitalists Get Paid Well to Lose Money” is well worth reading)._

But never swings back around to it (unless I missed it amongst the flowery
prose). Which leads me to ask: are there data points that compares a16z (or
other VC firms!) against the S&P 500, besides the aggregate?

~~~
jeffreyrogers
I have data that compares other VC firms to the S&P 500. Give me a few minutes
and I'll find it. Foreshadowing: it's pretty bad, you'd do much better putting
your money in an index of the S&P 500.

~~~
jeffreyrogers
Found it:
[http://www.kauffman.org/~/media/kauffman_org/research%20repo...](http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and%20covers/2012/05/we%20have%20met%20the%20enemy%20and%20he%20is%20us\(1\).pdf)

The title is "We Have Met The Enemy...And He Is Us": Lessons from 20 years of
the Kauffman Foundation’s Investments in Venture Capital Funds.

~~~
foobarqux
That's a great paper but most people are interested in the performance of the
top 10 firms, not the average of the top 100. If I invest only in
Sequoia/KPCB/AZ/Accel how well am I doing?

~~~
akg_67
You should be able to get return information from State Pension Funds that
invest in private equity/venture capital.

For example, the Washington State Investment Board Private Equity IRR report
can be access at
[http://www.sib.wa.gov/financial/invrep_ir.asp](http://www.sib.wa.gov/financial/invrep_ir.asp).
From December 2013 IRR Report [PDF] at
[http://www.sib.wa.gov/financial/pdfs/quarterly/ir123113.pdf](http://www.sib.wa.gov/financial/pdfs/quarterly/ir123113.pdf),

    
    
        U.S. Venture Partners VIII, L.P.     6/4/2001     3.23%
        New Enterprise Associates 10, L.P.     10/17/2000     3.16%
        Menlo Ventures X, L.P.     1/6/2006    0.66%

~~~
foobarqux
That's great, thanks. Unfortunately it doesn't have much post 2001 data on
many big name VC funds like Sequoia/Accel/KPCB.

Reuters couldn't get these via Calpers after suing.

[http://www.reuters.com/article/2013/12/20/us-funds-
californi...](http://www.reuters.com/article/2013/12/20/us-funds-california-
ucal-idUSBRE9BJ04I20131220)

------
ojbyrne
That made me ill. I'm sure a16z is great and all, but there wasn't even a hint
of criticism there. They couldn't find one slightly pejorative anecdote to
contrast with the endless amount of fawning? I had to double check the byline,
because by the end of it, I was convinced it had to be written by Robin Leach.
Champagne wishes...

~~~
thegenius
I agree. It's also worrisome that Marc Andreessen predicts the future so much
lately. The future simply can't be predicted with such reliability as his
certainty implies.

~~~
zbravo
Strong opinions, weakly held.

[http://blog.codinghorror.com/strong-opinions-weakly-
held/](http://blog.codinghorror.com/strong-opinions-weakly-held/)

------
capkutay
Andreesen Horowitz became the apple of every startup founder's eye because
they were the new guys who had success as investors while being friendly to
startups

I'd rather raise money from a guy who wears a 'No Bitchassness' [0] shirt who
wants to pump up my valuation, help me recruit tech talent, and allow me to
give equity to compensate my best people versus some stodgy old guy who thinks
he's better than everyone because he invested in [insert successful company
from the 90s/early 2000s].

Basically, they were the uber of VCs in terms of how they treated their
portfolio companies.

That said, I generally don't like media that praises investors because once we
start glorifying the fund-raising process rather than bootstrapping and making
money, we'll have tons of companies with too much money and no exit. Bubble
burst.

0: [http://www.jasonshen.com/wp-
content/uploads/2012/10/benhorow...](http://www.jasonshen.com/wp-
content/uploads/2012/10/benhorowitz-150x150.png)

------
nrao123
AH is doing some remarkable stuff.

1) Like any great knowledge based firm - which strives to differentiate over
and above its people - they have invested in tools. While the inspiration
maybe CAA, firms like Mckinsey (knowledge management system) and Goldman
(SecDB / Slang on the trading side and a detailed CRM system for the banking
side) used the software / infra layer to develop a sustainable advantage which
did not just depend on hiring the "smartest people" I.e. if people quit
Goldman / Mckinsey - suddenly they were not able to outperform. On wall street
- they call it seat value (how much value are you adding versus the
seat/organization)

2) As a complete outsider - one can still easily see how the CRM software +
sales connectors capability translates to $$$ for portfolio companies. For
e.g. Box's recent deal with GE.

3) Therefore, on the enterprise side , if AH acts like a sales force (led by
Mark Cranney) - then how does an enterprise company that is not backed by AH
compete? In other words, over and above the prestige factor of being backed by
a top tier VC firm- will NOT raising money from AH in the enterprise side put
you at a disadvantage?

4) How much of this sales force / business development muscle applies to the
consumer side? AH partners have referred to consumer startups as fruit fly
experiments and will invest with a strong offer post-traction/ series B? But
is there value in the consumer side as well in BD deals like how Moritz/Doerr
helped Google power yahoo search and collect valuable search engine user
behavior which was used to refine and test thier algorithms.

5) The article did mention in passing about recruiting support. But - I have
read about a detailed software + people capability on talent hiring.

6) So, if sales + recruiting + strategy/advise are three value adds by VC
firms (not counting money!) - does AH have a lock on 2 of the three?

~~~
jeffreyrogers
Right, but the real question is: what are their returns? (And: how do they
compare to VC as a whole?, how do they compare to long-term US treasury
bonds?, how do they compare to the S&P 500?

~~~
pbreit
As linked, AH's first fund had an IRR in the 30% range for 3 years which blows
away pretty much every other asset class. I'm sure Accel, Founders, Sequoia,
Benchmark, etc are doing even better.

You can't look at venture averages because the best firms are easy to identify
and perform much better than average.

~~~
jonnathanson
Three years is a very short timespan from which to make claims about asset
classes. In most cases, seven years is considered the minimum for a true
sampling of baseline performance; ten years is better, and more than ten is
better still. Obviously a16z hasn't been around for ten years, so metrics like
three-year IRR are the best we have. That said, it's silly to take a three-
year IRR and benchmark that confidently against something like the S&P 500.

On the other hand, I would strongly suspect that the top VC firms massively
outperform the VC industry as a whole, due to any number of factors, including
deal access, ability to secure favorable terms, ability to make new rounds or
exits happen, etc. In time, a16z's longitudinal performance may well beat the
market. But it's way too early to call the ball.

I agree that you can't really look at the aggregate performance of the entire
VC industry. It's probably a highly skewed distribution, with almost all the
big returns going to a handful of funds.

------
johan_larson
What would be the (software) VC equivalent of contrarian investing?

Let's see, we could invest in companies that

\- are tackling problems for which solutions already exist

\- are staffed by experienced people, not youth

\- use mature technology

\- have nothing to do with the web or even the internet

\- are run outside of the valley (bonus points for flyover country)

Surely there must be other things that warm the heart of the contrarian
investor?

~~~
pbreit
I don't think the geography is the best parameter. Think of it this way: if
something was contrarian in all other aspects, would you prefer it in the
Valley or outside? Can you say that about other parameters?

~~~
johan_larson
Contrarian investors try to do what most investors don't. Don't most VCs
invest primarily in companies that are nearby, meaning Silicon Valley proper
and maybe the larger peninsula? Which means a contrarian would invest outside
it. Maybe way outside it. Like Kansas.

~~~
pbreit
Well, I was just trying to explain why that might not need to be the case. You
can be contrarian and focus on the Bay Area. And that in fact might be
smarter.

------
cyphunk
Just a reminder, Andreessen is the same person that says Snowden is a traitor.

~~~
easytiger
And from reading some books discussing Andreessen & his past ventures I
wouldn't have thought he'd have considered Snowden anything other than a +ve
force in the information world.

Perhaps Andreessen has interests in companies that were hoping to help
governments spy on their charges?

~~~
jeremyt
Or maybe he just happens to believe what he says? Maybe he believes that the
sensitive information that Snowden released is damaging the security of the
US?

I personally think Snowden was a traitor. He released way more information
than was necessary to accomplish his goal; The information he released has
almost certainly put lives in jeopardy; AND he fled to Russia which is
essentially a totalitarian state where his presence, if not aiding in a
material way, is aiding Russia in a PR capacity. If you haven't noticed,
Russia is turning out to be, if not a geopolitical foe, and outright enemy of
the United States.

Why have we got to jump to questioning people's motivations every time they
stray from the party line? ...As if there is only one acceptable opinion to
hold on everything.

Sheesh

~~~
cyphunk
The _only_ comment he made were to blame Snowden and brush off the massive
surveillance and obstruction of civil liberties without a word. So rather than
consider the problem that created Snowden he only blames the messenger. I
can't think of a single character from the past year, be they pro or con, that
commented on the topic in a more pathetic way.

------
rattray
I wasn't aware of all the great stuff AH is doing. It looks impressive.

They're not the only VC firm innovating, though. First Round Capital, for
example, also has a terrific recruiting division (I know this is common at
other firms as well). FRC also created the Dorm Room Fund[0], which invests
small amounts in student-run companies and gives them access to FRC resources.
FRC has an internal "platform team", developing technology to enable knowledge
sharing between portfolio firms. In short, they work hard and do new things to
help entrepreneurs succeed.

I'm speaking about First Round because I have direct experience with them, but
I'm sure the same is true of some of the other VC's as well.

[0] dormroomfund.com - disclaimer, my former startup received funding from
them.

------
skrebbel
The word "disrupt" has become entirely meaningless, hasn't it?

~~~
_random_
I agree, just install this:
[https://chrome.google.com/webstore/detail/disrupt-to-
bullshi...](https://chrome.google.com/webstore/detail/disrupt-to-
bullshit/mahaemfhlcjficbbkbpmkbhhenfnikcf?hl=en)

------
Myrmornis
I couldn't get more than a quarter of the way through. Is it all gushingly
sycophantic?

------
idlewords
It seems really odd to have such an powerful part of the Silicon Valley
establishment accused of disrupting anything. Unless there's some aspect to
their business model that differes from venture capital in the most
traditional sense, and that I am missing.

------
ghshephard
It was an interesting Editorial Decision to not use the preferred A16Z, but
instead go with the (exactly same length) A.H. everywhere.

~~~
cpwright
A.H. requires no explanation for those not in the know, A16Z does.

~~~
ghshephard
Right - but linking their company's abbreviation to the software development
concept of I18N, would have been a great introductory paragraph, that picked
up on the essential geekiness of Ben and Marc. It's

------
richmarr
=~ s/Disrupting/Leading/

------
Havoc
It strikes me as ironic that he would pick Twitter to convey >140 char essays.

~~~
oroup
Especially as a board member of Facebook.

------
michaelochurch
Andreessen Horowitz has generated a positive reputation (in a field where most
of its counterparts are ridiculous, incompetent assholes, so seeming strongly
competent provides prominence) but here's a stark indicator for "wolf in
sheep's clothing": [http://a16z.com/2014/07/30/the-happy-demise-of-
the-10x-engin...](http://a16z.com/2014/07/30/the-happy-demise-of-
the-10x-engineer/) . Read it.

If you don't have a nose for rot, I'll point your way to it:

    
    
        Today, if you have a great idea for a software product, you need to either 
        be an engineer or find one. Tomorrow, that billion-dollar startup acquisition 
        might not need an engineer at all.
    

I have no direct knowledge of A16Z, but admitting a desire to make software "a
low-skill trade" is chewing our food for us. The moral conclusion is right
there. They've actually admitted to being the bad guys, to wanting to
commoditize top talent in favor of our MBA-culture colonizers.

Most of the time, the bad guys don't say, "We're the bad guys". You actually
have to do some research. You have to poke around the countryside and find the
emaciated political prisoners and the mass graves to figure out who the bad
guys are. Not here. The good news is that the Silicon Valley elite have such
unprecedented arrogance that, often times, they'll actually admit what they
are. They'll flat out say, "fuck you programmers, you had your turn."

For those who aren't educated on the matter, the evil of Silicon Valley's last
20 years is that it has become an economy of resource extraction (like Saudi
Arabia) instead of one that genuinely creates wealth. The difference is that,
instead of said resource being oil or natural gas, it's the intelligence and
energy of each generation of young people that hasn't figured out, yet, that
the only people with a decent chance of getting rich in this Valley game are
VCs and landlords (i.e. not them, the people doing the actual work).

~~~
markpundmann
Your acting just like the old factory worker who's pissed that his profession
is starting to become more automated. Wake up and smell the coffee, developers
are getting more productive and you have to adapt to the decreasing demand
that this will cause. Programming is job in the labor market just like a fast
food cooker. If you want to make some more money, either learn some skills
that most other people do not have and that are needed (low supply, high
demand), or start a company so that you can make some profits (which
technically have no limit).

BTW, I think you need to look at the salaries of some other professions. I'm
gonna be making 6 figures out of college as an SDE, while most of my
engineering and business friends are going to be making about half of that.
Talk to non engineering/business majors (cough, communication majors, cough)
and the pay gets even worse.

