
A16Z is re-registering as a financial advisor, renouncing its status as a VC - zt
https://www.forbes.com/sites/alexkonrad/2019/04/02/andreessen-horowitz-is-blowing-up-the-venture-capital-model-again/
======
ar7hur
a16z ("our" partner was Chris Dixon) led our seed round at Wit.ai. Working
with them on a day-to-day basis was an incredible experience. They never asked
for anything, but were always ready to jump in instantly when we needed
anything from sales intros to offices in Palo Alto. When we got an offer from
Facebook we founders wanted to accept it. They initially disagreed with us,
but once we confirmed our decision they supported us 100% in the negotiation
process. That's what I call class.

~~~
smallgovt
It's interesting this is the top voted comment when it isn't really
substantive to the article's subject matter.

~~~
rattray
As a would-be founder, this new move from A16Z makes me worry they won't focus
on helping startups like this anymore.

Anecdotes like this help quell that fear a bit, even if wrongly.

~~~
ALittleLight
Why would you want to wrongly quell a fear?

~~~
sokoloff
Why would you assume that _wrongly_ quells the fear? I would tend to assume
that the demonstrated character (good or bad, good in this example) of the
principals of A16Z would remain the same across the company change.

~~~
ALittleLight
I'm not assuming anything. The comment I'm replying to states that this helps
to quell a fear "even if wrongly".

To me, this seems like saying that removing the batteries from your smoke
alarm will help you sleep, even through house fires.

------
jakequist
__tl;dr __\- A16Z is reclassifying themselves as an "investment advisor",
which will allow them to make riskier bets (crypto, real estate, etc). They'll
still invest in startups like any other VC firm.

~~~
srndh
A totally n00b question.

Isn't VC the person with the money, so they are more in control.

While an "investment advisor" is just advising or suggesting where the money
can be put for maximum returns like an investment advisor in banks? So,
presumably less in control.

I don't understand why a title change was needed. Any technical or legal
reasons?

~~~
tomhoward
wpennington answered the overall question better than I could, but one
clarification on this:

> Isn't VC the person with the money, so they are more in control.

Most of the money VCs invest isn't their own. The money is allocated by
"limited partners" (entities such as pension funds, endowment funds, sovereign
wealth funds, rich individuals/families), and the VC firm uses their expertise
and network to invest the money on the LPs' behalf, in exchange for a
"management fee" and a cut of the returns.

The VC firm's partners do usually invest some of their own money (to have some
"skin in the game"), but it's a token amount compared to the outside money
they're investing.

Due to their role as custodians for huge amounts of other people's money
(which, particularly in the case of pension funds, ultimately belongs to
ordinary people), there are substantial regulatory controls and requirements.

~~~
wpennington
Totally--and this is a really good point to clarify, especially if one would
like to understand more broadly how VC works. I intentionally abstracted the
"where does the money come from" in my original reply to focus on the
classification itself, but that admittedly left the comment lacking this
useful context. LP and venture dynamics are both interesting and important to
understand the full picture.

> Most of the money VCs invest isn't their own.

To underscore tomhoward's point--VCs are largely (already) stewards of other
people's money (their LPs). So while they are set up to be "the person with
the money" from the market's perspective (e.g., if you are looking to get your
company funded), they are acting as investment advisors (e.g., where and how
to spend the fund's money--and by extension the LP's money--for a fee). Albeit
with a specific legal exemption set forth in the Investment Advisers Act that
governs certain activity depending on how they are registered* (this is what
is changing for a16z). No matter how they are registered, they do have
compliance requirements as custodians of other people's money.

*Under the Investment Advisory Act, they can be registered as: (1) ERA - exempt reporting advisor (what we are referring here as a VC in the traditional sense), or (2) RIA - registered investment advisor.

As it relates to a16z, they are giving up their IAA exemption as a fund
(registering as an RIA vs ERA). No need to get into why that matters again
(see other posts that have already addressed it well). The point being, VCs
are already in many ways "investment advisors" as custodians of other people's
capital (and sometimes their own) through their funds and they have compliance
requirements, just different depending on how they are registered.

------
chrisco255
Skepticism might be warranted, but it should be noted by now that
decentralized finance has a place in the present and future of our planet and
it's not going away. I strongly encourage technologists to keep an open mind
and do in depth research into the space.

Yes, 2017 was over-hyped. The tech was not mature then, and while it has
matured some since then, there's still quite a ways to go.

Bitcoin Lightning network is growing. Ethereum has successfully navigated core
upgrades and has a clear path to scalability. Other platforms are doing great
innovative things.

But to the core of the argument that crypto has no use case. It's 2019. We've
seen our internet rights to speech and expression violated by companies
imposing their values on their user base. We've seen digital ghosting,
deplatforming, fake news manipulation, propaganda and all kinds of insidious
behaviors from corporate giants that are too big to be truly accountable
anymore.

Bitcoin et al. are a very real promise that the future of banking and finance
and money will be decentralized. Which as far as I'm concerned, is about
freedom as much as speech is. You don't have any freedom if you have to beg
VISA or PayPal for permission to spend your money. That alone should be enough
to justify the existence of block chain technology and we should all be
cheering on its eventual success.

But besides that, the tech is being used in novel ways. From gaming to loans
to tokenized asset trading. Cryptocurrency is programmable in a way that is
just not possible with dollars.

~~~
zby
The problem with decentralized money is that there is no way to manage the
supply - you can only commit to a given supply curve, but you cannot adjust it
according to the state of the economy.

Money is a collective action problem, a public good - it requires a solution
that bounds everyone - just like defence.

~~~
beaner
Some people think this is a problem. Others, a feature. At least now we have
the ability to see what happens.

~~~
zby
You can have decentralized money without crypto - just use gold parity - but
somehow no country uses it now. Maybe they are all corrupt - but maybe it is
just not good way to manage the economy.

~~~
beaner
And maybe it's not, and the government is taking advantage of it's position of
power?

Competing tethered currencies aren't gone because they're a bad idea, they're
gone because they've been made illegal.

Crypto gives the power to operate such a currency back to the people in a way
that can't be stopped.

------
SideburnsOfDoom
"put a dent in the universe" ... "disagreeableness" ... "weaponizing his
popular blog" ... "Being number one"

A phrase from each of the first four paragraphs. Is this parody, or just
pandering cliche?

------
mattnewport
The investment returns on the funds sounded unimpressive given the time
period. I found some info online from the WSJ suggesting the first fund was on
track to return around 250% since 2009. Just investing in the NASDAQ would
have returned over 500% over that same period. Am I missing something here or
is the performance as unimpressive as it appears?

~~~
pbreit
The article itself includes: "The firm’s first and third flagship funds, $300
million and $900 million, respectively, are already expected to return five
times their money to investors, sources say. Its $650 million second fund and
$1.7 billion fourth fund are expected to return three times their investment
capital, good for the top quartile of firms, and are expected to climb."

Selecting the NASDAQ in 2009 is a bit of a cherry-pick.

~~~
mattnewport
I don't think selecting the NASDAQ in 2009 is a cherry pick given that is when
the first fund started and we're talking about a tech focused fund. Even if
the numbers here are more accurate than the WSJ, that still indicates the
first fund is returning on par or slightly below what investing in the NASDAQ
would have done over the same time period.

~~~
mrnobody_67
Venture as an asset class sucks.

Returns also tend to be inversely correlated to fund size and fund reputation.
Top 5 or 10 firms generate virtually all the returns in the asset class.

------
hkmurakami
So Hedge Funds, PE, and VC all converging into a more continuous spectrum of
asset allocation strategies.

------
dzhiurgis
Of everyone I follow it seems it’s only a16z still believes in crypto.

~~~
quickthrower2
What is there to believe or not believe in? It is what it is. Bitcoin is a
perfectly functional means of financial exchange, and has use cases that beat
regular cash, and other use case where it sucks compared to cash.

~~~
chx
> and has use cases that beat regular cash,

Tell me.

~~~
stale2002
Censorship resistant electronic, financial transactions.

The evidence shows that it is much easier to censor a credit card payment, or
bank transaction, than it is to censor a crypto transaction.

~~~
arcticbull
Which only matters if you're trying to do illegal things on an international
scale. Locally, you've always got cash.

~~~
stale2002
There are lots of perfectly legal things that get censored all the time, by
both the government and private companies.

Adult content is one area that comes to mind. If you run a business in this
area, on the internet, which is perfectly legal, you will quickly find that
every major financial institution refuses to do business with you.

~~~
arcticbull
There are payment processors that cater to that market. They charge large fees
(up to 20%) for card transactions, though that's actually due to the crazy-
high chargeback risk. People's spouses tend to discover their subscriptions,
then they declare it wasn't them, their card was stolen, and a chargeback
follows.

~~~
stale2002
Indeed, that's my point.

If you do business in one of these controversial areas, then you will quickly
find that you are being charged extremely high costs and/or kicked off of
their network.

~~~
arcticbull
They're not extremely high, they're the cost of doing business.

~~~
stale2002
And the world would be a much better place if it was harder to impose higher
costs of doing business on controversial, but legal businesses.

Which is why I support solutions that undermine attempts by a couple
monopolies to impose larger costs on legal, but controversial businesses.

~~~
arcticbull
Fair, though this isn't the technology that'll solve that. You've just
centralized the decision making to the PRC which controls more than 51% of
hash power. All it takes is a strongly-worded memo from Beijing and they can
censor payments and rewrite the blockchain.

That said, with $1.26 transaction fees + 1-2% to buy BTC vs. even 20% for a
credit card in this high-risk MCC, the breakeven is ~$7, and while I'm not
sure what adult content costs on a monthly basis, I'd imagine the fee
difference isn't a whole lot.

It's also not an imposition, nobody is required to use credit cards. Adult
content is largely and lucratively ad-supported. Some businesses choose to
offer content on a subscription model like the NYT paywall, and some choose
not to. I don't see anything inherently wrong with the status quo. The cost of
doing business is being passed down. They accept credit cards because even at
a 20% fee, it's in their interests to do so. If it wasn't they'd stop. Either
way, they're recovering their fees from customers.

~~~
stale2002
I mean, buying a bunch of miners in order to 51% attack a network is
significantly more difficult than making a phone call to a Visa or MasterCard
executive.

It is also not enough to censor a singular Blockchain. You'd have to get the
hardware to attack _all_ the chains, because then people would just move to
the other ones.

This is still not impossible. That's why I used the words "censorship
resistant". But it is certainly much more difficult than a phone call to 2 or
3 executives who control the major financial companies.

This is proven by the fact that censorship just isn't happening on most
Blockchains. The actual state of the network proves that it is difficult,
because it isn't happening.

You can talk all you want about theoretical attacks, but those attacks aren't
happening, so it works. Whereas there are many examples of the "phone call to
Visa" that _are_ happening right now.

~~~
arcticbull
My understanding is 2 or 3 miners in the PRC have all that 51%, and in China,
when Beijing says jump you say how high or you may end up escorted from your
penthouse at the four seasons in Hong Kong to seek medical treatment on the
mainland and never be heard from again
([https://www.google.com/amp/s/www.nytimes.com/2017/01/31/worl...](https://www.google.com/amp/s/www.nytimes.com/2017/01/31/world/asia/xiao-
jianhua-china-hong-kong-billionaire.amp.html))

~~~
arcticbull
To circle back 80% of all hashpower is concentrated in 6 pools, 5 of which
(>70%) are in the PRC. ([https://news.bitcoin.com/chinese-mining-threatens-
bitcoin/](https://news.bitcoin.com/chinese-mining-threatens-bitcoin/))

~~~
stale2002
And yet, those pools aren't censoring anything.

They aren't stopping any transactions, and have never done so, in the 10 years
that crypto has been around.

This is in comparison to visa and mastercard which censor people all of the
time.

So for whatever reason that those pools aren't censoring anything, and have
never done so, but the major finance companies _are_ censoring transactions,
is the reason why crypto is valuable.

------
rdl
If they're now an IA, they're not able to talk about their investments
publicly? Doesn't that hurt the value proposition for startups/etc. taking
money from the new a16z?

------
rdl
Kind of depressing that they gave up on the "GPs must have been operators"
rule (presumably due to pressure by LPs or the press). Do any large VC firms
still maintain that?

~~~
mrnobody_67
I think Matrix still does. Lots of smaller/newer firms as well (i.e. Craft
Ventures).

------
neilv
As a financial advisor, will A16Z have fiduciary responsibilities towards
advisees that it doesn't now?

(I don't know this area, other than a little small business personal finance,
but I recall hearing about some fluctuation in rules about financial advisors,
within the last few years.)

------
CalChris
I've had my morning coffee and it's dawning on me what this means (dawning
slowly because it is quite a change). Yes, A16Z gets to extend its reach, as
if investing in seed and growth stage tech companies wasn't risky+lucrative
enough.

Maybe I'm conservative, but I'd rather they stuck to their knitting (which
they're pretty damned good at). There are downsides to this 'diversification'
first and foremost, losing focus, but also risk. Basically, I can't help but
think of SV's overall trend towards Too Big To Fail.

I'm not a fan of crypto at all. Re-structuring A16Z so that they can bet on
that seems worse than silly. Real estate? Perhaps they can bet on Chinese
ghost cities as well.

------
yalogin
I don’t know much about their business but I tried listening to their podcast,
it was just ads for their companies and ideas. Couldn’t take it.

~~~
elliekelly
Well that will all but stop now that they’re an RIA so perhaps it’s worth
giving it a second listen in a month or two.

------
os7borne
Honestly, I don't understand the implications this has on their investing
activities or the mechanism of this structure. I also don't fully understand
the regulations around VC Funds and RIA's in USA (I'm from India).

From what I understand though, a16z is trying to breakaway from investing in
the limited scope of securities (e.g. equities) of private companies. They
want to offer a suite of wealth management services to their Investors in
addition to VC investing.

But then, will the Investors pool capital in the Fund and the Fund be advised
by the RIA? Or will the RIA directly advise the Investors? The structure isn't
too clear to me. Apologies for the ignorance.

------
twakefield
Matt Levine's take is this is due to fact that "private markets are the new
public markets"[0]. The lines between public and private markets are blurring
so this is a prudent move by A16Z.

TLDR;

As companies stay private longer, and get bigger and raise more money while
staying private:

* The secondary market for private shares becomes more important.

* VC's now may have more asymmetric information or more reasons to invest in public markets.

* Mutual funds are competing with VCs in later private rounds so why should VCs be able to compete with Mutual Funds in public markets.

* The obligatory crypto reference.

Another one he doesn't touch on is maybe it's difficult to efficiently deploy
> $10 billion in just private markets?

[0]
[https://www.bloomberg.com/opinion/articles/2019-04-03/buying...](https://www.bloomberg.com/opinion/articles/2019-04-03/buying-
the-good-stocks-can-be-bad)

------
engineerworks
I kinda think getting rid of the VC status is better than you can encourage
investment in something unethical and risky without being on the hook because
"we are just the advisors, it's the person with money who takes final shot
with what they wanna do with their money"

I can see why it can help if the opportunities are shrinking in the legit
space.

Maybe the winter is finally coming?

------
ratel
Dear Gentlepeople, can I point out the Elephant in the room, or better the one
leaving it. The most interesting part (especially for HN) is not where A16Z is
going, but what it is leaving behind: VC. Setting aside the shift in social
tide for a moment, why does A16Z think there will be no more profit in VC? Any
thoughts?

~~~
RhodesianHunter
They don't, they're still doing VC. This just lets them invest in other things
as well (like crypto).

~~~
ratel
That may be true, but the fact that they need the new path to make larger
investments outsides of VC raises the question how much VC money will be left.
Furthermore the change still implies that they think other investment
opportunities might be more profitable than the one they were actually quite
successful in.

------
kchoudhu
Does this mean they are going to try to syndicate IPOs as well?

Get your portfolio companies coming and going.

------
xmly
By stopping the investment or no-investment-for-free shares?

------
arisAlexis
interesting link [https://a16zcrypto.com](https://a16zcrypto.com)

------
KasianFranks
> venture capitalists have long traded a lack of Wall Street-style oversight
> for the promise that they invest mainly in new shares of private companies.
> It was a tradeoff firms gladly made—until the age of crypto, a type of high-
> risk investment the SEC says requires more oversight. So be it, says
> Andreessen Horowitz. By renouncing its venture capital status, it’ll be able
> to go deeper on riskier bets: If the firm wants to put $1 billion into
> cryptocurrency or tokens, or buy unlimited shares in public companies or
> from other investors, it can.

Pitchforks and funding purism aside (forget about blockchain debates), crypto
assets are here to stay. They're the new publicly traded vehicles and function
as a way for new startups to raise capital from new truly global 'capital
markets' along with being a valuation metric. a16z figured this out. They knew
what happened with facebook in SecondMarket [1] and also knew the largest
upside in shareprices (aka IPOs/exits) are dictated by a public market
marketplace, not with private startups.

Factor what Fidelity with $6T AUM has already released in rolling out global
crypto services [2].

Separate crypto, as a capital raising vehicle and trading vehicle, from
'blockchain' and then it all begins to make sense. Real scientific and
technical due diligence will help too [3].

[1] [http://fortune.com/2012/05/18/facebooks-pre-ipo-pricing-
hist...](http://fortune.com/2012/05/18/facebooks-pre-ipo-pricing-history/)

[2] [https://www.coindesk.com/coindesk-most-influential-
blockchai...](https://www.coindesk.com/coindesk-most-influential-
blockchain-2018-tom-jessop)

[3] [https://medium.com/@492727ZED/vectorspace-ai-due-
diligence-d...](https://medium.com/@492727ZED/vectorspace-ai-due-diligence-dd-
guidelines-for-crypto-for-2019-aa8cea3df5f7)

------
Alterlife
As a side note, I generally like reading, but I cannot for the life of me pay
attention this circus of an article. The animations give me motion sickness.

I see comments here which indicate there may be something worth reading in
there, but my brain is screaming at me to ignore it. The whole thing feels
like an advertisement.

Perhaps it's because suits are making a corporate comeback.

~~~
rococode
Firefox has a "Reader View" that's super convenient for things like this.
Automatically shows a button in the address bar on sites it supports, and it
turns the page's content into a simple mostly-text view with some nice
customizations:

[https://i.imgur.com/GJ6fW0y.png](https://i.imgur.com/GJ6fW0y.png)

~~~
sidlls
Unfortunately "reader view" does nothing to aid with the "rambling narrative"
model that articles these days have. I read through the first half of this one
before I gave up: the salient points can easily be condensed into a couple of
paragraphs even with some embellishment to avoid being merely a list of facts.

------
markdown
Is the title intentionally clickbaity, or does the author just not know that
"blowing up" could mean two completely opposite things?

~~~
QuackingJimbo
a16z is not the object of the "blowing up". There is no clickbait or
ambiguity.

------
kkotak
I'm disheartened by the power wielded by so few in the American King Making
Machine called the Silicon Valley.

~~~
toephu2
Why? Isn't that the way everywhere else works? I'm not losing any sleep over
it.

~~~
taurath
It’s a clear feature of the economic system, but to a growing group it’s more
of a bug.

------
TheTruth1234
If it looks like a duck ...

Quack, quack!!!

------
seibelj
A16Z’s unapologetic bet on cryptocurrency and blockchain companies is big for
the industry. As crypto heats up again and blockchain 3.0 projects emerge
(Cosmos, Polkadot, Ethereum Proof of Stake) VC will help legitimize the
industry.

~~~
googlemike
Can you provide a single problem where the right solution space is blockchain?
Ive thought about this a good amount, and cannot come up with a single use
case where current established centralized technology is not a better
solution.

~~~
mightybyte
One problem that I think blockchains could be well suited for is the storage
of police evidence. Not physical evidence of course, but anything that could
be turned into data. There was a scene in the show Billions where U.S.
prosecutors tampered with evidence in the from of notes taken while
interviewing persons of interest. Since blockchains are at their core a
tamper-proof append-only data store, if those notes had been stored in a
blockchain that evidence tampering would have been impossible. Any time the
stakes are high enough a centralized technology can become vulnerable to
people being bribed, etc.

Note that my use of the term "blockchain" here isn't limited to public
blockchains. You most likely wouldn't want to store police evidence publicly
on a blockchain like Ethereum. You'd want that to be private, but there do
exist private blockchain consensus algorithms like BFT that do have the same
tamper-proof properties without requiring a public proof of work network.

~~~
peteretep
Why does this need a blockchain rather than being simply cryptographic
signing?

~~~
monson
Securely signing a cryptographic message with a provable timestamp still
requires a trusted third party, as far as I know. A trusted third party can be
corrupted.[1]

Writing data on a decentralized blockchain inherently provides a secure
timestamp that cannot be modified without being noticed. Not to mention the
extreme costs involved with trying to rewrite a blockchain's history. [2]

I disagree with the parent comment on one thing-- I would much rather trust a
public blockchain with a respectable hashrate over a private blockchain. You
could simply store a salted hash of the data on the public blockchain, and
still keep the actual evidence private.

[1]
[https://en.wikipedia.org/wiki/Trusted_third_party](https://en.wikipedia.org/wiki/Trusted_third_party)
[2]
[https://en.wikipedia.org/wiki/Trusted_timestamping](https://en.wikipedia.org/wiki/Trusted_timestamping)

~~~
peteretep
> still requires a trusted third party

That would be the judiciary. If they -- the people with the guns and the
resources of the state -- become corrupted, you'd be unwise to think that your
cryptographic signatures are going to help much.

In the example given, having lodged the evidence with the court would have
prevented the abuse.

~~~
monson
> you'd be unwise to think that your cryptographic signatures are going to
> help much

It was you who suggested simple cryptographic signatures in your initial reply
to the parent comment. I was only pointing out that securely signing a message
with a timestamp requires a cryptographic entity known as a "Trusted Third
Party". Please see the first link in my original comment.

> That would be the judiciary. If they -- the people with the guns and the
> resources of the state -- become corrupted, you'd be unwise to think that
> your cryptographic signatures are going to help much.

If there was verifiable proof on a globally distributed blockchain that
evidence had been tampered with by a judiciary member of a democratic country,
I find it very hard to believe they would get away with it in the long term.

~~~
peteretep
> I was only pointing out that

No, you were pointing it out and then saying that the flaw of this system was
that the judiciary could be corrupted.

> If there was verifiable proof on a globally distributed blockchain that
> evidence had been tampered with by a judiciary member of a democratic
> country

Putting aside the many many political and practical ways in which this fantasy
will stay firmly a fantasy, why does this need a blockchain instead of simply
a published list of documents, if this is globally distributed?

------
3mtj20
Dear Lord I hope it's 2017 all over again :)

------
solatic
A18Z: "we'll submit to more SEC oversight so that we can trade like Wall
Street firms"

Wall Street: "Welcome to the big leagues. Ever heard of the efficient market
hypothesis?"

