by aston on 9/2/16, 12:10 AM with 37 comments
by CPLX on 9/2/16, 1:39 AM
by jboydyhacker on 9/2/16, 2:48 AM
That's basically a backend way of figuring out how much of their returns are pie in the sky. One other thing to keep in mind to give a16z the benefit of the doubt is their funds are MASSIVE. Putting that amount of capital to work is hard- and relatively harder than Bessemer and the other funds they are compared to.
That said, the % of Fund III in particular that is non realized is fairly scary. I'd take a wager that it does not return capital. Note also A16z pretty quickly raised a new fund before a lot of these returns for 3 become clearer. That's just guessing on my part but I'd def bet III is not gonna be good. That said I still love a16z and the partners and their approach...I actually hope I'm dead wrong.
by evetheattacker on 9/2/16, 2:17 AM
Unlike the blog states, it seems that WSJ is, in fact, using "actual, realized returns" as evidence.
http://www.wsj.com/articles/andreessen-horowitzs-returns-tra...
by jonstokes on 9/2/16, 3:21 AM
by grandalf on 9/2/16, 1:25 PM
Accounting should be done in a way that maximizes the usefulness of financial reporting for strategic and management decisions. In some cases, firms are required by regulators to adopt specific practices, but there is a fair bit of freedom given to the CFO.
VC firms must make wise financial decisions and satisfy their LPs with some degree of transparency. The accounting strategy chosen must accomplish both goals.
In many cases, it makes sense to be very pessimistic about valuations, and doing so often reduces tax liabilities.
On a side note, the whole "mark to market" scandal from the 2008 financial crisis was a case where firms typically marked assets in a way that matched their management goals, but at times failed to reflect short-term price fluctuations.
Regulators thought that forcing firms to mark assets to a known market price would result in better financial reporting. The problem was that the balance sheets containing those assets were also used as underwriting capital. So a market price increase (or bubble) in the assets was suddenly leveraged into a lot more risk capital by the firm (whereas before the rule, the CFO would not likely have wanted to mark the assets that high).
This resulted in industry-wide increases in risk capital for "free" because of asset price spikes, and following that it led to increased investment. The problem was, when the price fell back down, the firms were over-leveraged. It's generally a bad idea to use highly volatile assets as underwriting capital.
So while "mark to market" sounds good, it can enhance natural fluctuations (minor boom/bust cycles) in a destabilizing way.
The art of being the CFO of a VC firm is likely a very interesting thing, and it would be fascinating to learn more about how this happens across the industry.
by johnwheeler on 9/2/16, 5:54 AM
Top hedge funds are known for 2 & 20, and Berkshire Hathaway doesn't charge anything.
30% is murder. Scrutiny is justifiable.
by emilyfm on 9/2/16, 1:29 AM
by mathattack on 9/2/16, 1:21 AM
I find the OPM method interesting. Has anyone here used this? Is it always more conservative? Is it a better predictor of realized value?
by noahmbarr on 9/2/16, 2:19 AM
by everly on 9/2/16, 3:50 AM
by pbreit on 9/2/16, 3:08 AM
"nothing" is the wrong word here. My experience is that the "marks" are indeed quite helpful and for the most part, reasonably accurate.
My experience is also that many portfolio company valuations are not particularly sophisticated.
The hedge fund comparison is odd since many hedge funds investments are as illiquid or more.
by daveguy on 9/2/16, 1:55 AM
by jgalt212 on 9/2/16, 1:21 PM
by randomname2 on 9/2/16, 9:00 AM
by PaulHoule on 9/2/16, 12:58 PM
by XiZhao on 9/2/16, 1:42 AM
by simbalion on 9/2/16, 1:04 AM
zing!