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What Everyone Is Missing about Venture Returns

It was interesting to watch the back and forth last week between the Wall Street Journal and Andreessen Horowitz about venture fund performance. The entire exchange seemed to miss entirely the reality of how LPs and founders value venture funds and the actual process by which funds aggregate and deploy capital.

The WSJ made the point that the A16Z funds trail the “top-tier” marked returns of funds like Sequoia, Benchmark, and Founders Fund. A16Z shot back, saying that you can’t compare across funds because they use different valuation methodologies in how they report illiquid, unrealized returns to investors. It also attacked the idea of calling marked unrealized gains “returns.”

The reality is that this debate is irrelevant to both LPs providing financing and founders taking it.

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The reason there was so much discussion of the WSJ article is that, more than other funds, A16Z has run a strategy of putting itself in the public eye beyond the traditional LP and founder stakeholders that matter. That means it may feel like it has a broader brand as “the best” to protect than others. But in practice when you dig in, no one is comparing Benchmark and A16Z directly on returns—except maybe the media.

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Because the Benchmark strategy limits the aggregate dollars they can deploy, it means even wealthy and well-connected individuals and institutions aren’t likely to get into the fund.