
Andreessen Horowitz Raises $1.5B for New Fund - brianchu
http://fortune.com/2016/06/10/andreessen-horowitz-new-fund/
======
w1ntermute
There was a discussion on HN about a week ago on a16z and its performance[0].
Does anyone know how a16z's funds' IRRs compare to those of other top-tier VC
firms (Accel, Benchmark, Greylock, Sequoia)? And are these "top-tier" firms
actually providing the best returns for their LPs, or have they just created
that perception?

With so few IPOs or acquisitions, how are the LPs actually getting their cash
back? And how much of that money is eaten up by the "services" that a16z
provides to its portfolio companies, not to mention the insane amount of
content marketing they've done over the last few years (blogs, podcasts,
books, etc.)?

0:
[https://news.ycombinator.com/item?id=11836341](https://news.ycombinator.com/item?id=11836341)

~~~
jsprogrammer
1/3 of the raise can be used to pump cash to those who came on earlier funds.

~~~
gumby
Most fund agreements prohibit cross-fund investment, mainly because it's an
incentive for fund n+1 to be used to prop up losing investments from fund n,
deferring the day of reckoning.

~~~
jsprogrammer
Maybe. AH doesn't appear to roll that way.

~~~
gumby
Really? That's interesting, though not unheard of. I haven't seen their LP
agreement of course.

There are actually two reasons why LPs typically don't want to agree to this.
The first is that most funds focus on a specific stage (early, late etc);
typically early stage funds want to invest through the entire cycle (so if
firm X puts $5M into your A round they plan to put a total of, say, $20M
through the liquidity event). But a later stage fund might want certain
investment criteria (expansion, growth, whatever the partners come up with)
and don't want it used for "familiar" deals that might not fit that thesis.

The main reason, the one I mentioned above, is propping deals up. the big
driver for this is that the IRR numbers are completely made up based on
judgement, which has to be the case as most of the fund will be tied up in
illiquid investments. However the people making the decision is conflicted --
they are the fund GPs and of course want to look good to get new investors
into their next funds. You shouldn't assume they are corrupt or malevolent:
inherently they can't be dispassionate, otherwise they wouldn't be qualified
to be supporting their portfolio companies through thick and thin. But this is
why firms are unhappy about CALPERS releasing IRR numbers, or why Fidelity
might legitimately (publicly, as they are required to) mark an investment down
while the venture firm might just as legitimately consider it higher in value
-- and different venture firms could even disagree.

So the poor incentive cross-fund investing provides is that a fund that is
struggling, especially a zombie fund, might want to bridge some of its firms
via an investment from a newer fund in the hopes that things might turn
around. This incentive is even stronger during a negative macro event (i.e. a
recession). An LP in the new fund doesn't want to see its good dollars
following bad, it wants the money in new, promising investments.

Now if you are a big firm and can throw your weight around, or have some
unicorns that everybody is clamoring to get into even at a nosebleed
valuation, then you might be able to get the LPs to permit cross-fund
investments. But you might not even want it (don't forget the GPs will likely
be different in the different funds so their interests might not even align.

So: quite uncommon but not unheard of.

~~~
jsprogrammer
The prior information was as according to the article. Supposedly, $0.5
billion must be committed for such use (though, it may not be).

I don't think it requires corruption, or malevolence; only a source of cash,
and a desire to get cash to prior investors.

~~~
gumby
Ah, I think you misunderstand the structure. They have structured the raise as
two interrelated related funds. The two funds presumably invest in _the same
set of portfolio companies_. I assume they structured it this way as way of
reducing fees and perhaps because some LPs were interested in different levels
of exposure.

    
    
      This is the same size as Andreessen Horowitz’s past two funds and, like each of those efforts,
      includes a primary pool (which can do both early and late-stage deals), plus an overflow pool
      for portfolio companies that require significantly more capital. 
    
      The breakdown this time is $1 billion for the main fund and $500 million for the parallel
      fund―the latter of which only collects management fees once capital is committed.
    

If this parallel fund had been able to invest in earlier funds (remember each
fund is a separate company with a different set of LPs and GPs) I am sure they
would have mentioned it.

~~~
jsprogrammer
That's what I thought at first, as well; until I scrolled past some
advertising to, what I think is, the last sentence:

> Andreessen Horowitz’s still-private portfolio companies include Airbnb,
> Buzzfeed, Cyanogen, Lyft, Instacart, Jawbone, Magic Leap, Okta, Product
> Hunt, Slack, and Zenefits.

If we believe the Fortune magazine, AH may have raised the side pool for any
number of those companies.

------
rdlecler1
Unlike most VC firms which may be paying MPs millions in cash comp, a16z takes
their management fee and plows it back into the platform (marketing, HR,
research, etc). a16z's core team would never half to towel again in their
life, so they don't care much about a couple hundred k here or there. They're
looking for the next G/FB/TW/AirBnB/Uber.

------
n72
Is there any evidence that VC firms are any better at predicting the future
than hedge funds? I understand a few years ago that perhaps there were some
inefficiencies in the startup market which could be exploited, but now that
everyone focused on SV (and elsewhere) startups, is there really a reason to
pay 2% of AUM for someone to make guesses on your behalf?

------
nl
Pretty sure Instagram was in the second fund (although they didn't actually
make huge money off it).

Second fund also had Nicira ($1.2B), and possibly the Zynga and GroupOn IPOs.

Seems decent results to me.

~~~
forgetsusername
It's interesting that Zynga and Groupon could be considered as part of a
basket of "decent results". I mean, I'm sure a16z made out quite well, but
both companies are worth a fraction of what they were sold to he public for. A
less generous interpretation is that the early investors in these companies
pulled a fast one on the public. "Getting to IPO" shouldn't be a measure of
success, but that's just me.

~~~
SkyMarshal
Keep in mind that IPO investors are not John Q Public, but sophisticated Wall
St. types. They knew the game on those investments - stock market musical
chairs.

------
cloudjacker
Startups, startups everywhere!

------
jondubois
Nooooooooo! They're going to spam the economy with more startups to compete
with my side project... For the next 10 years or so :(

~~~
waddabadoo
Not sure why you get downvoted. Its true, with all this VC casino "startups",
you as a hobbyist, not living in the us or be part of the bubble stand no
chance.

