>Third — and related to both of the above — figure out an investing model that is suited to outcomes that have a higher liklihood of success along with a lower upside. This is truly the most important piece — and where Andreessen, given his position, can make the most impact. Andreessen Horowitz has thought more about how to change venture capital than anyone else, but the fundamental constraint has remained the assumption of high costs, high risk, and grand slam outcomes. We should keep that model, but surely there is room for another?
I'm puzzled that the above paragraph was written by Ben Thompson with his background including an MBA and the writing of insightful articles about startups.
The reason VCs don't invest in other non-VC things like "boring" and "low-return" city infrastructure projects, or small/medium businesses to help communities -- is because that's not what the people who put money into their fund expected them to do.
Some folks seem to forget that VCs are ultimately managing other people's money. Pension funds, university endowments, charities, some wealthy families, etc. The investment officer working as custodian of a teachers' pension fund didn't give money to a VC like a16z to build a new sewer system. The pension fund is looking for 15-20% returns and looked to a16z's expertise on evaluating startup founders. That's what they specialize in. Previous comment about the complexity of different investments leads to specialization: https://news.ycombinator.com/item?id=21365966
I think Ben's idea is that Marc A (and a16z) is influential and so they can put out a prospectus for a new type of fund with a different investment thesis that avoids YC software startups and focuses on low-risk low-return low-margin "hard" projects. Well here's the problem, the pension fund officers will not think it's a good use of their money and will invest their money elsewhere. Therefore, the VC fund using Ben's ideas does not raise any money.
The customers (Limited Partners) with the millions to invest is the constraint that any person raising a new fund with "feel good" ideas faces. E.g. let's say you want to create an investment fund that "feeds poor 5-year old children nutritious meals and reads books to them because children are the investment into our future." Ok, it sounds noble but when the investment officer of the Firemen Retirement Fund asks how it makes money, you need to have a credible answer. Otherwise, your fund gets no money and the feel-good investment thesis goes nowhere.
My previous comment on why alternative investment ideas don't need essays about it. They just need financial mavericks to pursue it and everybody will copy them. (https://news.ycombinator.com/item?id=21588264)
However, Andreessen Horowitz is probably not the financial maverick that can prove the alternative investment idea will work. Their firm and their staff are built to understand software startups. Somebody else has to lead with Ben's ideas.
You're right about a lot of this, but I think what you're missing is that Marc Andreessen did this financial maverick thing once, which is why he is influential. So it is probably right that Andreessen Horowitz the fund is not the right vehicle for such a thing, but having written his open letter, and with a deep well of influence and (presumably) some unique talent for setting up investment vehicles, Marc Andreessen the person is well positioned to put his money where his mouth is and work toward making this new kind of investment vehicle work.
Yes, this would involve finding new kinds of LPs or selling the same LPs on a new vision with different trade-offs, but that finding-LPs-and-selling-them work is exactly what it took to launch Andreessen Horowitz, so it is not crazy to suggest that perhaps Marc Andreessen is well positioned to get to work on this.
The response to your other comment you linked (edit, this one: https://news.ycombinator.com/item?id=21588626) is also interesting and meshes with my intuition that there might be more of a market for this than your giving credence to. I would also add that a benefit of this possible market may be that it could be a lot bigger than the pool VCs are currently constricted to. I think one interpretation of what we've seen with unicorns (and SoftBank, which is increasingly looking like a debacle) is that there is more money that wants in than there are businesses with the right model for the kind of VC money they are getting. It is plausible that a more sustainable model might be found in a much broader market of less risky companies.
I'm puzzled that the above paragraph was written by Ben Thompson with his background including an MBA and the writing of insightful articles about startups.
The reason VCs don't invest in other non-VC things like "boring" and "low-return" city infrastructure projects, or small/medium businesses to help communities -- is because that's not what the people who put money into their fund expected them to do.
Some folks seem to forget that VCs are ultimately managing other people's money. Pension funds, university endowments, charities, some wealthy families, etc. The investment officer working as custodian of a teachers' pension fund didn't give money to a VC like a16z to build a new sewer system. The pension fund is looking for 15-20% returns and looked to a16z's expertise on evaluating startup founders. That's what they specialize in. Previous comment about the complexity of different investments leads to specialization: https://news.ycombinator.com/item?id=21365966
I think Ben's idea is that Marc A (and a16z) is influential and so they can put out a prospectus for a new type of fund with a different investment thesis that avoids YC software startups and focuses on low-risk low-return low-margin "hard" projects. Well here's the problem, the pension fund officers will not think it's a good use of their money and will invest their money elsewhere. Therefore, the VC fund using Ben's ideas does not raise any money.
The customers (Limited Partners) with the millions to invest is the constraint that any person raising a new fund with "feel good" ideas faces. E.g. let's say you want to create an investment fund that "feeds poor 5-year old children nutritious meals and reads books to them because children are the investment into our future." Ok, it sounds noble but when the investment officer of the Firemen Retirement Fund asks how it makes money, you need to have a credible answer. Otherwise, your fund gets no money and the feel-good investment thesis goes nowhere.
My previous comment on why alternative investment ideas don't need essays about it. They just need financial mavericks to pursue it and everybody will copy them. (https://news.ycombinator.com/item?id=21588264)
However, Andreessen Horowitz is probably not the financial maverick that can prove the alternative investment idea will work. Their firm and their staff are built to understand software startups. Somebody else has to lead with Ben's ideas.