Sims brings up the following point about VC returns:
> The predominant old way of thinking about venture capital is that you: a) build up a great brand and reputation with a large portfolio of investments, b) hire partners who have individually strong brands of their own, and c) collect hefty management fees on each fund. The industry standard is a 2–2.5% yearly “management” fee, a figure that gets pretty large on a billion dollar fund. And, in my experience, not surprisingly, the senior people get a disproportionate slice of that management fee. At the same time, the venture capital industry has been a glaringly poor-performing asset management group, consistently underperforming the S&P 500. (For more detail on the struggles within the VC industry, a recent article on the Harvard Business Review Blog by Diane Mulcahy, a senior fellow at the Kauffman Foundation, entitled “Venture Capitalists Get Paid Well to Lose Money” is well worth reading).
But never swings back around to it (unless I missed it amongst the flowery prose). Which leads me to ask: are there data points that compares a16z (or other VC firms!) against the S&P 500, besides the aggregate?
http://www.reuters.com/article/2013/12/20/us-funds-californi...
The title is "We Have Met The Enemy...And He Is Us": Lessons from 20 years of the Kauffman Foundation’s Investments in Venture Capital Funds.
And blindly tracking major indexs means you are highly invested in a smallish number of stocks in the same area in this example investing in the big indexes means you will have take all the losses with the bank crashes - instead of a share/fund that got out or banks when it looked to toppy.
The return comparison is unequal.
A better barometer would be cash on cash returns but with vc funds that may be difficult to track.
I'd rather raise money from a guy who wears a 'No Bitchassness' [0] shirt who wants to pump up my valuation, help me recruit tech talent, and allow me to give equity to compensate my best people versus some stodgy old guy who thinks he's better than everyone because he invested in [insert successful company from the 90s/early 2000s].
Basically, they were the uber of VCs in terms of how they treated their portfolio companies.
That said, I generally don't like media that praises investors because once we start glorifying the fund-raising process rather than bootstrapping and making money, we'll have tons of companies with too much money and no exit. Bubble burst.
0: http://www.jasonshen.com/wp-content/uploads/2012/10/benhorow...
1) Like any great knowledge based firm - which strives to differentiate over and above its people - they have invested in tools. While the inspiration maybe CAA, firms like Mckinsey (knowledge management system) and Goldman (SecDB / Slang on the trading side and a detailed CRM system for the banking side) used the software / infra layer to develop a sustainable advantage which did not just depend on hiring the "smartest people" I.e. if people quit Goldman / Mckinsey - suddenly they were not able to outperform. On wall street - they call it seat value (how much value are you adding versus the seat/organization)
2) As a complete outsider - one can still easily see how the CRM software + sales connectors capability translates to $$$ for portfolio companies. For e.g. Box's recent deal with GE.
3) Therefore, on the enterprise side , if AH acts like a sales force (led by Mark Cranney) - then how does an enterprise company that is not backed by AH compete? In other words, over and above the prestige factor of being backed by a top tier VC firm- will NOT raising money from AH in the enterprise side put you at a disadvantage?
4) How much of this sales force / business development muscle applies to the consumer side? AH partners have referred to consumer startups as fruit fly experiments and will invest with a strong offer post-traction/ series B? But is there value in the consumer side as well in BD deals like how Moritz/Doerr helped Google power yahoo search and collect valuable search engine user behavior which was used to refine and test thier algorithms.
5) The article did mention in passing about recruiting support. But - I have read about a detailed software + people capability on talent hiring.
6) So, if sales + recruiting + strategy/advise are three value adds by VC firms (not counting money!) - does AH have a lock on 2 of the three?
If they're so great, please show us some returns vis a your competitors and other asset classed with similar risk profiles.
You can't look at venture averages because the best firms are easy to identify and perform much better than average.
Let's see, we could invest in companies that
- are tackling problems for which solutions already exist
- are staffed by experienced people, not youth
- use mature technology
- have nothing to do with the web or even the internet
- are run outside of the valley (bonus points for flyover country)
Surely there must be other things that warm the heart of the contrarian investor?
I can add even one more I personally follow. The standard way most tech companies put capital to work is hiring or aqui-hiring tech talent.
My own experience tells me that's too risky since I've worked with far, far more overvalued people than undervalued. Therefore, I reinvest the profits of my tech business into companies that have steady and real return on equity (e.g. Wells Fargo). Imagine that: A tech company that invests all retained earnings in a boring bank! :)
Perhaps Andreessen has interests in companies that were hoping to help governments spy on their charges?
I personally think Snowden was a traitor. He released way more information than was necessary to accomplish his goal; The information he released has almost certainly put lives in jeopardy; AND he fled to Russia which is essentially a totalitarian state where his presence, if not aiding in a material way, is aiding Russia in a PR capacity. If you haven't noticed, Russia is turning out to be, if not a geopolitical foe, and outright enemy of the United States.
Why have we got to jump to questioning people's motivations every time they stray from the party line? ...As if there is only one acceptable opinion to hold on everything.
Sheesh
They're not the only VC firm innovating, though. First Round Capital, for example, also has a terrific recruiting division (I know this is common at other firms as well). FRC also created the Dorm Room Fund[0], which invests small amounts in student-run companies and gives them access to FRC resources. FRC has an internal "platform team", developing technology to enable knowledge sharing between portfolio firms. In short, they work hard and do new things to help entrepreneurs succeed.
I'm speaking about First Round because I have direct experience with them, but I'm sure the same is true of some of the other VC's as well.
[0] dormroomfund.com - disclaimer, my former startup received funding from them.
If you don't have a nose for rot, I'll point your way to it:
Today, if you have a great idea for a software product, you need to either
be an engineer or find one. Tomorrow, that billion-dollar startup acquisition
might not need an engineer at all.
Most of the time, the bad guys don't say, "We're the bad guys". You actually have to do some research. You have to poke around the countryside and find the emaciated political prisoners and the mass graves to figure out who the bad guys are. Not here. The good news is that the Silicon Valley elite have such unprecedented arrogance that, often times, they'll actually admit what they are. They'll flat out say, "fuck you programmers, you had your turn."
For those who aren't educated on the matter, the evil of Silicon Valley's last 20 years is that it has become an economy of resource extraction (like Saudi Arabia) instead of one that genuinely creates wealth. The difference is that, instead of said resource being oil or natural gas, it's the intelligence and energy of each generation of young people that hasn't figured out, yet, that the only people with a decent chance of getting rich in this Valley game are VCs and landlords (i.e. not them, the people doing the actual work).
BTW, I think you need to look at the salaries of some other professions. I'm gonna be making 6 figures out of college as an SDE, while most of my engineering and business friends are going to be making about half of that. Talk to non engineering/business majors (cough, communication majors, cough) and the pay gets even worse.
But you're also missing the irony here: when software foundations consolidate, so will everything else in software. Instead of a thousand crazy 'apps' like SnapChat, you'll have user-derived variations, fulfilling the long tail, leaving little need for VC and the silly valuations they inspire.