
Andreessen Horowitz Returns Slip, According to Internal Data - dawhizkid
https://www.theinformation.com/articles/andreessen-horowitz-returns-slip-according-to-internal-data
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relaunched
Be very careful. The IRR for a fund that is very young is deceiving. Fund V,
for example, closed at the end of 2016. AT the time the documentation was put
together, there could have been very little capital deployed and it doesn't
represent subsequent rounds that have yet to be raised.

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dawhizkid
See link to a chart on returns by year/fund from the article:
[https://twitter.com/vcstarterkit/status/1173611439833006080](https://twitter.com/vcstarterkit/status/1173611439833006080)

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breck
That looks pretty good to me. One dumb math question: when is a good time to
compare against something like an S&P benchmark and should annualized rates or
absolute growth be compared? In other words, is Fund I "cashed out" now, or
could it's 44% return go up? Just doing simple math, adding 1 year to a CAGR
calculation and doubling the FV of Fund I from 12B to 24B, seems to jump the
return rate only to 48% from 44% (even though that more than doubles the
profits). So would it be better to compare the absolute growth of the S&P to
the growth of a fund, instead of the rate of return?

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thesausageking
Venture funds typically take 10-15 years for the investments to cash out. It's
been close to 10 years for fund II, but I believe they invested in Foursquare
and AirBnB, so depending on how those companies do it could change their
returns.

In general, it's hard to answer questions based on this chart. In addition to
IRR, VC funds are judged on two other key numbers:

TVPI (Total Value to Paid In) which is the total value of all of the fund's
investments divided by the capital LPs have put into the fund, both realized
and unrealized. For the latter, LPs will often look at the investments
themselves and make their own determination of value. Especially in this
environment, many funds have investments in unicorns that are inflated and
never end up being realized. A fund with a $800m TV may not actually look
great if a large % of that is in WeWork and is based on a $40B valuation. This
is also the case for IRR.

DPI (Distributions to Paid In) which is the total amount of cash a VC fund has
sent to LPs divided by the amount of the LPs paid into the fund. At the end of
the day, this is the most important number as it's what the fund's investors
make, but it can take 10-15 years for a fund to completely distribute
everything, so it's not that useful unless the fund has been around a long
time.

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mbesto
I don't have access to the full article, but from the lede this looks like not
very well researched journalism:

1\. A16Z has 17 funds, with varying degrees of investing angles (early stage,
crypto, bio, etc). So trying to do a fund by fund analysis is unfair.

2\. IRR can be deceiving as it's time based. Some LPs invest based on "X
Return" or IRR, and so cherry-picking one over the other is disingenuous
without mentioning the other.

3\. The larger the fund, the harder it is to have a higher IRR. A16Z keeps
growing the size of it's funds (latest is $1b+). There are just simply not
enough good deals out there to deploy that amount of capital. This is just
like growing your top line revenue 50% from $1M to $1.5M, vs 10% from $10 to
$11M. The former appears to have be semantically "better performing growth",
when actually you made $500k more than you did previously.

4\. The fact that they, a VC firm, are even returning their money means LPs
will continue to invest. VC as an "asset class" is notoriously
underperforming, with exception to the top 10% of the firms (which A16Z would
likely be). Which begs the question, "so what?".

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vasilipupkin
doing a fund by fund analysis is not unfair as funds are marketed to LPs
separately. It does me no good that fund ABC had 30% IRR if fund XYZ that I am
invested in from tbe same brand of manager is earning 1.5% IRR.

"IRR can be deceiving as it is time based". No, it's the other way. A return
without mentioning how long it took to earn it is deceiving.

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mbesto
> A return without mentioning how long it took to earn it is deceiving.

Except that this is how some LPs want it to be reported, so how do you explain
that? If you want to do a comparison to stock market returns ("seeking alpha")
then sure, IRR makes sense.

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rememberlenny
Key points:

The funds the firm raised in 2010 and 2011 showed a net internal rate of
return of 16% and 12%.

The results are a significant drop from the 44% return rate of its 2009 fund.

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ProAm
Did people think a 44% return was sustainable?

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andy_ppp
And isn't 16% ans 12% still excellent? It seems better than almost anything
else really...

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AJRF
Certainly not excellent - Obviously there is a lot that goes into it - but 20%
would be closer to the average expected return on a VC fund like A16z based on
the style of investing, not achieving that - or higher - would be a
disappointing run.

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hobofan
Would be interesting to know how much of an impact their bullish stance on
cryptocurrencies and related projects had in this.

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lquist
I've heard talk about this from VCs for years. Their reputation and results
don't match.

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seem_2211
A few thoughts spring to mind:

It seems like the more money you have, the harder it is to deploy it
efficiently.

It would be interesting to know the influence of David Swensen (the CIO at
Yale), who's put a large portion of their endowment into Private Equity and
Venture Capital investment, and how other large funds might be mimicking his
strategy.

People always compare VC vs the S&P500 but I wonder if there's a side benefit
to VC in that it's not necessarily linked to stock market fluctuations.

Are VC returns in the aggregate going to turn to absolute crap over the next
ten years as hundreds of new funds (with a new one popping up every day it
seems) all grinding it out - or will we see the opposite, where a lot of these
smaller funds have very successful first funds (partially constrained by the
sizes they're initially able to raise), only to be dramatic underperformers as
they raise second and third funds?

Finally, it seems like more money doesn't make for better results (past a
point). The Vision Fund being example A.

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nafey
With this and soft Bank going to great lengths to ensure WeWork IPO's, I think
we will see more desperate moves by the investors in coming weeks.

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jacquesc
Did you mean "ensure WeWork doesn't IPO"?

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lordnacho
I think he means that Softbank can mark their investment at the last valuation
if they stay private, but if they go public at $10 they mark a huge loss.

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josu
Is there a way to pay per article, or do I have to buy the $999 yearly
subscription?

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ryanSrich
You can sign up for $1/m for 3 months if you have a referral link. I don’t
have one handy, but searching on twitter you can usually find one.

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glaive123
[http://thein.fo/r/jessica](http://thein.fo/r/jessica)

Found in the Founder's twitter bio

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dingdongding
What are returns of VC firms generally? Anyone has done analysis on this?

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ramphastidae
It is nearly impossible to do so given the private nature of these numbers but
having worked in the industry extensively I can tell you the returns are
generally atrocious and that no one invests in VCs to be fiscally responsible
in the traditional sense.

Investors who put money in VC are generally so wealthy that by the time they
are ready to invest in VC they have exhausted all other standard investment
opportunities like stocks, private investments in mature companies, personal
trusts and real estate and are simply looking for anything with a higher
chance of return than a bond.

I’d estimate 90 out of 100 times the VC burns entirely through the money, 9
out of those 100 break even, and 1 out of 100 is profitable. 0.1 generate a
return of something like Apple or Google.

That 0.1 in a 100 chance is good enough for the investors as they don’t feel
any pain when it’s lost.

That’s why VCs have no interest in sustainable but mid-size businesses, only
100x opportunities. Their public marketing will push that it is because they
are visionaries, the reality is that they have no interest or expertise in
building mid-size businesses and the returns are so awful for their
‘visionary’ picks that without that 100x investment working out their funds
would consistently be total losses.

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lizhang
Could you elaborate on what it means to have "exhausted all other standard
investment opportunities like stocks, private investments in mature companies,
personal trusts and real estate"? Is this due to some tax/estate laws?

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bradstewart
Generally it's more about allocation and diversification. You can only put so
much money in "standard investments".

When you already have a few hundred million in stocks, bonds, etc, the
marginal benefit to putting another few million into the bond market is
completely irrelevant--it's a rounding error in the overall portfolio. But
putting those few million into a venture capital fund has the potential to
generate a noticeable return.

It can also insulate you against structural shifts in markets. If WeWork were
to fundamentally change the global real estate market, or some new battery
startup fundamentally changes the energy landscape, investors in the
incumbents can be left with significantly devalued portfolios.

Having a piece of anything/everything that might become the "next be thing" is
a hedge against that.

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roseway4
The data is apparently a year old (see chart). A16Z has seen a number of large
exits since then (Lyft, GitHub, etc)

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jormungand
paywall ha. Could we perhaps agree that whomever posts an article with a
paywall should summarize the points made?

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jbottoms
The paywall link should be disabled after 50 people unsuccessfully try to
reach the site.

