
Andreessen Horowitz Raises New $1.5B Fund - kressaty
http://a16z.com/2014/03/27/andreessen-horowitz-raises-new-fund/
======
salimmadjd
Some interesting read on A16Z.

The keys to Andreessen Horowitz's success (February 15, 2013) [1]

Ben Horowitz on quality of good founders to be CEO (Mar 14, 2010) [2]

Mark Andreessen interview on Bloomberg about their strategy (Feb 28, 2103) [3]

On the Charlie Rose show about feature of Facebook (Nov 11, 2012) jump to min
15:00 [4]

Insights into their investing strategy based on 20 of their investments (Oct
17, 2013) [5]

Investment syndication patterns (Oct 3, 2013) [6]

Ben Horowitz presentation at DLD Conference on how they choose an investment
(Feb 1, 2013) [7]

[1] [http://tech.fortune.cnn.com/2013/02/15/andreessen-
horowitz-t...](http://tech.fortune.cnn.com/2013/02/15/andreessen-horowitz-
transcript/)

[2] [http://techcrunch.com/2010/03/14/notes-on-leadership-jobs-
gr...](http://techcrunch.com/2010/03/14/notes-on-leadership-jobs-grove-
campbel/)

[3] [http://www.bloomberg.com/video/67149794-andreessen-
interview...](http://www.bloomberg.com/video/67149794-andreessen-interview-
about-investment-strategy.html)

[4]
[http://www.charlierose.com/watch/60150320](http://www.charlierose.com/watch/60150320)

[5]
[http://digitalmedia.strategyeye.com/article/WvR0QuYTcU/2013/...](http://digitalmedia.strategyeye.com/article/WvR0QuYTcU/2013/10/17/insight_4_things_that_20_deals_show_us_about_andreessen_horo/)

[6]
[http://www.cbinsights.com/blog/trends/sequoia-a16z-investmen...](http://www.cbinsights.com/blog/trends/sequoia-a16z-investment-
syndicates)

[7] [http://www.businessinsider.com/how-andreessen-horowitz-
choos...](http://www.businessinsider.com/how-andreessen-horowitz-chooses-
investments-2013-2?op=1)

~~~
DanielRibeiro
Ben's interview with Sarah Lacy[1] is also just amazing. Some excerpts:

\- At
[http://www.youtube.com/watch?feature=player_detailpage&v=sqI...](http://www.youtube.com/watch?feature=player_detailpage&v=sqI7fa04atc#t=3284s):

 _the people who work at tech companies in SV are like super brilliant and
incredibly capable, and the last thing a person like that wants is to not to
be able to get in the game and like help fix what is wrong._

 _...and let me tell you: every company in SV like including Facebook,
including Square, including Twitter, including all of them, has got shit
horribly wrong, horribly horribly broken and wrong and everybody in the
company knows it and the CEO knows it, so it is better to talk about it.
Because that’s how companies are, like stuff just breaks. If you have like 500
or 1000 people trying to do something, it is not all going to be perfect, it
is gonna be ugly and you get that out there and you let people work on it. And
that is probably the number 1 thing I would say about motivating people when
stuff goes wrong._

\- At
[http://www.youtube.com/watch?feature=player_detailpage&v=sqI...](http://www.youtube.com/watch?feature=player_detailpage&v=sqI7fa04atc#t=3662s):

 _If you don’t have winning product, it doesn’t matter how well your company
is managed, you are done_

\- At
[http://www.youtube.com/watch?feature=player_detailpage&v=sqI...](http://www.youtube.com/watch?feature=player_detailpage&v=sqI7fa04atc#t=3698s)
:

 _Why even bother with management if that is the case? But the truth is: there
are several things that are very important, one is if you get into trouble,
and if you have bad management, your company will probably die. Like the
people will just quit, they are not bonded to it, the don’t like working
there, they never liked working there, and that is that, it is a wrap. ... if
you succeed at building a company that everybody just hates working at, what
have you done? You just made a whole lot of people a whole lot more miserable
in their lives._

[1]
[https://www.youtube.com/watch?v=CqODNbFz6EY](https://www.youtube.com/watch?v=CqODNbFz6EY)

------
lifeisstillgood
I listened to Marc A on this week's Freakonomics podcast, giving a very
plausible rationale for why we should still care about crypto-currency. (Go
listen - its good)

I am trying to salve my conscience and turn open source software and public
sector into a mission (#) - but despite loving his pitch and wanting to
believe in the Golden future, I must have too-small-a-mindset.

How on earth can you spend 1.5 billion on startups in the next couple of
years? I could take 5 million right now and do some amazing stuff in message
queueing in local UK government - the future is bright, but cheaper. Are they
wanting to put in for 300 small startups that will change our infrastructure
but essentially make things cheaper, reducing the total cake? Or is this 100M
for a few "build the next rocket" startups?

(#) oss4gov.org/manifesto - I still think its the best I have yet expressed
about how angry I get seeing proprietary code running government.

~~~
mchusma
It is still expensive to build big companies, and $1.5B is tiny by financial
markets standards. Bond firms like Pimco and Blackrock measure things by
$100Bs and trillions.

Let's say you invest in 50 startups per year for 5 years. That is 250 firms,
averaging $6M/firm.

~~~
imjk
You're forgetting money that they can leverage from banks with the money they
raised.

~~~
HockeyPlayer
I've never heard of a VC leveraging up with borrowed money. Who would be on
the hook if the fund loses money?

~~~
ganeumann
VCs' portfolio companies often raise debt. This is called venture debt and the
lenders are banks like Silicon Valley Bank.

VCs tend to have a love/hate relationship with venture debt. On the one hand,
it means they suffer less dilution as the company grows; on the other hand, it
means their investment gets riskier just at the point where they are finally
de-risking the company.

------
paulbaumgart
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
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
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
The returns for top notch VC firms like a16z and the returns for VC as a whole
are like a difference in kind.

~~~
foobarqux
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
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-
andreesse...](http://finance.fortune.cnn.com/2012/07/23/nice-ira-andreessen-
horowitz-returns-first-fund-twice-over/)

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
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
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.

------
namenotrequired
Honest question, as I've never really understood the industry: where does this
money come from and why? And where does the money go that acquisitions and
IPOs earn them?

~~~
zt
Venture funds are "General Partners" that manage a pool of capital on behalf
of "Limited Partners" or LPs. Limited partners in a fund this size are usually
pension funds (CalPERS), university and not-for-profit endowments (Harvard,
Brown, MacArthur Foundation), and maybe high-net-worth individuals.

So A16Z raises commitments of 1.5B from all of these people who have a lot of
money that they want to grow. Those people deploy their capital to VC, to
Hedge/PE funds, to timber, to public markets, to bonds, etc.

A16Z aren't actually given a pile of cash though, instead A16Z does capital
calls on an as-needed basis. Then A16Z deploys that capital to startups and
other companies over the life of the fund (often ten years with some
extensions).

Most venture funds operate on something like a "two and twenty model" meaning
that every year they get 2% of the funds value for operating expenses. In A16Z
they have a huge staff of designers, recruiters, BD experts, etc, that help
their startups. The 2% goes toward things like that.

The 20% is carry, which is earned as a percentage of net income. So let's say
that A16Z invests 5M in a company on a 10M pre-money valuation. A16Z owns 1/3
of the company. The company sells for $30M the next day to Facebook. A16Z now
has $10M dollars. They take $2M of that for themselves and then they
distribute back to the LPs the other $8M.

(This is lacking a lot of nuance like side funds, but I hope it's helpful).

~~~
napoleond
_The 20% is carry, which is earned as a percentage of net income. So let 's
say that A16Z invests 5M in a company on a 10M pre-money valuation. A16Z owns
1/3 of the company. The company sells for $30M the next day to Facebook. A16Z
now has $10M dollars. They take $2M of that for themselves and then they
distribute back to the LPs the other $8M._

I'm pretty sure carry is _profit_
([http://en.wikipedia.org/wiki/Carried_interest](http://en.wikipedia.org/wiki/Carried_interest)),
so in your example A16Z would pocket $1M, not $2M (because the $5M A16Z
invested needs to be repaid to the LPs first, and then A16Z gets 20% of the
remaining $5M). Please correct me if I've misunderstood.

~~~
zt
Oh ya, that's my mistake. I was right when I called it "net income" but then
didn't do the net in the actual math! I'll leave it unedited so your comment
makes sense though.

------
mhartl
It's interesting to see a mention of "full stack" startups. I hadn't realized
that investors have identified such companies as being members of a distinct
category.

~~~
napoleond
It's a specific reference to a blog post by Chris Dixon:
[http://www.cdixon.org/2014/03/15/full-stack-
startups/](http://www.cdixon.org/2014/03/15/full-stack-startups/)

------
pbreit
Does anyone know what kind of IRRs a16z is seeing in previous funds?

The amount of cash available to startups right now is breathtaking.

------
martindale
The biggest returns in this fund will be in the cryptofinance space.

------
EGreg
How does one successfully apply to a fund like this?

Warm intros only, right?

------
sjg007
Man Andreessen has come along way since Mosaic.

