Today, we’re analyzing a16z, the VC firm that was the face of the bull market from 2009 to 2021. A16z fully embraced this movement by raising massive funds right out of the gate (their first fund was $300 million), investing at high valuations, creating a media platform for their VC firm with the help of renowned Hollywood agent Michael Ovitz, hiring hundreds of employees to support startups with sales and hiring, compared to just five partners at rival firm Benchmark, and spearheading the movement that former founders and operators make better venture capitalists than career investors do.
It may be no surprise that many competing VC firms, then and now, share some distaste, or perhaps jealousy, for the loud and aggressive investing style of a16z. But as I’m sure partners at a16z tell their startups all of the time, to be successful, you have to differentiate. You have to take advantage of a movement and go big, and a16z certainly went big.
Sure, it’s great they differentiated and led the charge post-GFC, but were they actually successful? Well, as we’ll see today, their first fund, which included the three companies we’ll discuss in this episode, posted a 44% net IRR as of 2018, according to Pitchbook, certainly putting them as one of the best-performing large-scale VC funds of the 2010s.
That means over an 8-10 lifespan, that fund was valued somewhere around $8-$10 billion on $300 million invested. A large chunk of that value is from winners like Stripe that haven’t actually returned capital yet, but other investments like Instagram, Okta, and Slack, which actually returned roughly $3.5 billion in capital to the firm, show that a16z can practice what they preach.
Today, we’ll investigate why a16z invested in Instagram (Burbn), Okta, and Slack (Tiny Speck). We will also dive deep into the firm’s general investment theses, what they look for in founders, what traits they feel make the best VCs, and general advice they have for founders. At the end, we’ll look into some huge misses they had in the past in companies like Uber and Square, and also one miss that, unlike most anti-portfolio companies, deserves some praise in the company formerly known as FTX.
To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.
To read more about a16z, along with several other companies they invested in that we didn't discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.
You can also follow me on X at Justin_Pryor_ for more nuggets of information that I post throughout the week based on what I talked about in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.
Intro Music: High St. by Alex Dethero