First Serve

Yesterday, the Wall Street Journal ran an article on the VC firm Andreessen Horowitz (hereafter, ‘a16z’). The piece took a look at the firm’s raise-rounds and returns, and was critical of a16z’s placement among other “venture-capital elite” like Sequoia, Benchmark, and Founders Fund.

While the article is quick to throw around numbers and buzzwords like “elite” and “blockbuster [investments],” the main premise is that a16z hasn’t yet earned the “premier reputation” that it has amongst those in the tech community.

Second Serve — Response

The response from the tech world basically ate up the rest of yesterday afternoon and night.

It started with a response blog post from a16z managing partner Scott Kupor, which was posted not long after the original piece went up: When Is a “Mark” Not a Mark?

One thing Kupor points out immediately is that “marks” and “returns are two very different things in the realm of venture capital. Further, “[c]ash or stock actually realized and distributed to LPs is the only real, non-manipulable measure of a firm’s interim success.”

Kupor is articulating that the data which the WSJ published is somewhat misleading because it chose the metric of unrealized returns to match the title of the article. He further fleshed out this argument as the post went on.

Then the flood began.

Mark Suster wrote a great response of his own here: What to Make of Andreessen Horowitz’s Returns?

One of Suster’s most intriguing points is when he plots the line of thinking lot of VC’s have had about a16z over time, from “ ‘We love Ben and Marc’ and ‘they raised how much’ to ‘…they sure are hiring a ton of staff…’ and ‘How can we hire more staff to keep up with the services they offer?’. ”

More importantly, though, Suster puts into context a reason why a16z might already have the reputation that it does — that most entrepreneurs perceive it as a place of great connections and services, and that he himself has had positive experiences with the firm when they’ve done deals with Upfront Ventures (oh which Suster is a part).

Twitter Thoughts

All the while, I was intrigued to see the flow of responses over Twitter:

anyone who thinks *three* @a16z VC funds @ 25-42% IRR isn’t *FUCKING GREAT* performance is ignorant or full of shit. https://t.co/cIpu1ONjRg

— Dave McClure (@davemcclure) September 1, 2016

 

@EricNewcomer @WSJ @RolfeWinkler @a16z the title of the article should be a young venture firm is already generating top returns.

— Alex Iskold (@alexiskold) September 1, 2016

 

This is what you need to know about @a16z – all three funds have outperformed the average of #VC funds in those yrs. https://t.co/bg74WtN1Ep

— Sridhar Athreya (@athreyanomics) September 1, 2016

 

@danprimack @RolfeWinkler N.B. ommitted Lyft, Slack, Tanium, Zenefits, Okta, Mesosphere, Soylent, Lookout & 3yrs to go to hit 10yr mark

— Semil (@semil) September 1, 2016

 

So long as we’re gossiping abt @a16z $$$, here’s something to remember: partners donate 50% of earnings to charity https://t.co/NdCOyxlj2V

— Hunter Walk (@hunterwalk) September 1, 2016

 

@adammarx13 @pmarca I think wsj underestimates branding & mindshare in the long game.

— Charles Jo (@charlesjo) September 2, 2016

 

Why the WSJ’s Focus on a16z’s “Rivals” Is Misplaced

Part of what I find so intriguing is the direct aversion to a dynamic that is perpetuated in the original piece. Whereas the WSJ article paints a broad picture of a16z in relation to its “top rivals,” here are numerous responses from VC’s who run other funds seemingly going to bat for Andreessen Horowitz. In my opinion, this is something exceedingly important which the article skates over.

Yes, these different funds and investors compete for the best deals and the best founders/companies to work with. But most don’t do in a way that makes it easy to label them as rivals.

The term “rival” has a finality to it, as if it’s a forgone conclusion that those two parties will always be on opposite sides of the table. Yet inasmuch as everyone in this business wants to “win” at deals, the metaphor I see is more of a music one than a sports one. In the latter, there’s one winner, one champion. The former, however, creates a paradigm where multiple winners can exist, and where there is a fluidity regarding partnerships and mutual benefits.

Funnily enough, the WSJ added this little blurb to the original article not long after, though really without restructuring its initial argument to account for Kupor’s points:

So what’s the takeaway in all of this?

• First and foremost, understand the numbers, terms, and dynamics you’re working with and writing about. That seems to be a point of disconnect between the original article and the response pieces.
• Second, things are rarely ever as simple as they appear to be.
• Third, there is a way to write hard-hitting journalism without [publically] making enemies; if you don’t know how to do this, you should alter your writing strategy.

While I wouldn’t call the response to the initial article “biblical” by any sense, it nonetheless provides a good window into the dynamics of venture capital thought and strategy. If nothing else, founders have now been given a good variety of response posts to read and understand, particularly with regard to VC fund calculation and long-term plays.

I know what I’ll be doing this weekend.

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If you enjoyed this, find me on Twitter @adammarx13 and let’s talk music, tech, and business!