The Ledger
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a16z's larger venture funds consistently outperform its smaller funds
“Our funds consistently beat small, large, Diversified, concentrated venture funds. So our larger funds have outperformed our smaller ones, and our larger ones actually have similar multiples of money to our smaller ones across, across strategies.”
Only five founders globally justify paying growth-stage valuations at early stages
“The kinds of people like that, that warrant an investment decision, you know, a thought process like that, I think are extremely small. I mean, the list is five people, I think.”
George: Aggressive crossover venture funds actually generate good returns
“First, I think there's a little bit of a misperception in the market about some of those firms who have been more aggressive recently. Their returns are pretty good. They've done a good job.”
a16z gives startups more leeway on gross margins today
“On the gross margin point today, I'll say this. We give a little bit more of a pass than we used to.”
a16z's best fund ever saw Databricks return 7x and Coinbase 5x
“Our best performing fund in the history of the firm is actually a one billion dollar fund. So it's a large fund, right? In that fund, Databricks has returned seven X the fund so far. Coinbase has returned already DPI five X of the fund.”
53% of dollar gains in top recent IPOs came post-Series C
“We actually just looked at the 50 top IPOs from 2017 to 2025. And if you disaggregate where the dollars of return come from, 47% of the dollars of gain happens between the seed in the series B and 53% of the dollars of gain happened from series C plus.”
Most AI value creation will happen in private markets, not public
“And if you look at what's happening in the private versus public markets now, the size of the winners from a new tech wave, that's going to happen in the private markets.”
David George says no public CEO he knows regrets going public
“So, you know, I tell our CEOs all the time, I've been fortunate to work with a bunch of public companies. Never one of them has said, I regret going public.”
a16z paid growth prices for early-stage Character.AI to back Noam Shazeer
“My partner, Sarah led around a character AI and, you know, it was extremely early stage and, You know, we invested at a, you know, what you would call a gross stage price. But we knew that the likelihood of some degree of success in backing Nome was extremely …”
Business model shifts are the primary driver of AI software disruption
“If I were to rank order the level of disruption that is coming for these companies, business model shift is number one. And so, you know, we can talk about examples where that's most in practice today. You know, Sarah and Kimberly from our side led investment,…”
AI-native software companies will reach larger market caps than SaaS giants
“And so I have to think that this next wave probably presents the opportunity for this next generation to be much larger than the previous generation.”
Public markets assume legacy SaaS companies are doomed by AI
“In the public markets today, you are guilty until proven innocent. It's the full flip side of our criminal justice system where you are assumed that you are doomed by AI unless proven otherwise.”
Venture capital kingmaking creates adverse selection by backing fundamentally weaker startups
“We can king make if we just put the capital into the companies and then that will allow them to win. But that's a bit of an adverse selection machine where the companies that opt into that as their winning strategy are the ones that maybe don't have as good of…”
Unscaled mid-tier venture capital firms face high risk of being squeezed out
“Yeah, there's scale players, and then there's specialists. And I think, you know, we're obviously a scale player. I think the risk is, is everything in between, right? Department stores that have general merchandise, but don't have scale, for example. And that…”
Winning AI applications are growing three times faster than predecessor SaaS startups
“For most of these companies that we've backed, these winning apps, they're growing faster, three X faster, you know, than predecessor SaaS and cloud companies.”
Foundation model API providers will eventually operate as a high-margin oligopoly
“I think the market structure will end up sort of like cloud for the models where, you know, cloud costs for the average end customer are fine. And, you know, cloud's an oligopoly and they make high profits. I think the model companies, you know, that serve API…”
Traditional SaaS margins in an AI pitch indicate low AI feature usage
“If we ever see a company that pitches us as an AI company, and they have SaaS gross margins, we ask a lot of questions because it probably means that people aren't actually using the AI features.”
Independent AI application software companies will win across almost every category
“We fully changed our mind. I think there's going to be application software companies built on top of models in pretty much every direction.”
Independent AI apps will thrive despite foundation models building competing products
“It's sort of like how AWS and the cloud, you know, have service offerings for basically everything that, that you could possibly have. And yet there's still tons of infrastructure companies that are independent.”
Robotics will become the largest category in artificial intelligence within 10 years
“You know, we have not made a large investment in robotics, but I think it's going to be the largest category in AI, B to C, B to B. You know, there's still kind of debate on what the right form factors are. Whether it's at home help, whether it's industrial, l…”
George: Tech market leaders capture the vast majority of market cap
“We actually think most many or most tech markets play out in market cap in a similar way where the leader captures the vast majority of the market cap creation.”
George: Outsized growth returns come from unexpected volume, not unit economics
“The unit economics end up being sort of table stakes, right? Like you could get it wrong to the downside. It's very rare that the company ends up with, you know, unit economics that are much greater than what you expected. It's much more common that, Hey, the …”
George: Market leaders capture the vast majority of tech sector market cap
“And so we actually think most many or most tech markets play out in market cap in a similar way where the leader captures the vast majority of the market cap creation.”
Law enforcement tech shifted from a terrible category to highly lucrative
“And so it used to be that historically selling into law enforcement was a terrible category. And now it turns out that it's a wonderful category. If you actually have the most compelling products, you can get tremendous amounts of market share.”
a16z historically refuses to sell secondary shares in late-stage portfolio companies
“We could, but we historically have not. And so, you know, for the most part, for the companies that have decided to stay private, we've been really excited to stay in them, keep backing them. And that's probably the strategy that we'll, we'll continue to have.”
Recent a16z portfolio startups would access cheaper capital in public markets
“I can say in our portfolio, the companies that we have invested in over the last year or so, I'm pretty confident that if they were in the public markets, they'd probably have access to capital at a cheaper cost.”
Avoiding stock volatility is the primary advantage of staying private longer
“I think the biggest advantage is the avoidance of volatility in your stock price and sort of employee management. And so, you know, I think You know, if you can kind of steadily grow or control your stock price in the private markets, even if it's a slight dis…”
Russell 2500 average return on invested capital halved over 30 years
“The ROIC of the Russell 2500 over the last 30 years, it's gone from seven and a half percent steadily down to three percent. So like more than cut in half.”
High-quality US private tech market cap dwarfs private equity technology
“If you just look at the size of The private technology, high quality companies, it dwarfs the size of private equity you know, private equity technology in the US.”
Top-performing venture capital funds historically outperform top private equity funds
“If you were to look at our returns or the top performing venture funds, let's just call it that relative to, you know, top performing PE funds, the top performing venture funds outperform.”
Half of a16z's growth investments are follow-ons from its venture portfolio
“By the numbers, about half of what we do is follow-ons from existing venture companies. And then from a dollar standpoint, another 15% is follow-ons from existing growth stage companies. And then about a third or so is fully net new companies.”
VCs should invest in exceptional strengths rather than a lack of weaknesses
“When we make an investment, we should always be investing in strength of strengths as opposed to lack of weaknesses.”
C.H. Robinson saw a 40% AI-driven productivity gain in shipments
“They just disclosed in their last earnings that they saw a 40% productivity increased, increase measured in shipments per person per day in their core business since the end of 2022. 40% increase. It's an incredible and it's AI driven. And so what's actually h…”
a16z raised its underwriting bar for AI startups due to hypergrowth
“And so this is the bar has actually gone up significantly for us when we look at AI companies because it grown so fast. And so you can't actually look at years of renewal behavior, but you can look at shorter cycles of retention and you most importantly can lo…”
Breakout AI companies achieve massive scale with near-zero customer acquisition costs
“11 Labs has this, ChatGPT has this, XAI has this where it's organic customer acquisition or, you know, very low cost sales acquisition, Abridge, Harvey, companies where, like, the market is just absolutely starving for their product.”
Return on invested capital is the single best metric for evaluating companies
“The number one way to measure a company is ultimately return on invested capital.”
Using massive capital as a weapon rarely succeeds in consumer tech
“Capital as a weapon in consumer, most of the time it's, it doesn't really work. Like I would say TikTok is maybe the exception, maybe Uber.”
Top high-growth tech companies will trade above 6x public revenue multiples
“I also don't think that every great high growth company will end up trading for six times in the public markets. There are some that are going to trade higher based on very high growth rates or high cashflow.”
Gross margins for AI applications will rationalize and increase over time
“The history of technology inputs would suggest that the margins will rationalize and the margins are going to go up.”
a16z underwrote its later OpenAI investments primarily on consumer market potential
“As we under have kind of underwritten future rounds of open AI or later rounds of open AI is very much, you know, with the mind of consumer.”
George missed DoorDash by underestimating unit economics and localized network effects
“I missed a lot in DoorDash, not just the unit economics, you know, the power of the market size, the localized network effects, and probably most importantly, the best founder in the space building in that area.”
George: Celonis will deliver sustained high growth without aggressive cash burn
“I think their business model is fantastic. I would view their future as very elevated levels of high growth with high returns on capital, and, you know, there's not some looming intense competitive threat that makes them think that they should aggressively go …”
a16z Growth targets 3x to 5x returns with a 10% loss rate
“We target three to five X returns over five years in aggregate, but we place So we're constantly asking, how could this investment be worth 10 X plus? And we focus probably more of our effort on that than around the downside. You know, I always ask my team whe…”
a16z Growth uses 5-7 year horizons to absorb entry valuation errors
“So we think in five to seven year terms and try not to worry if we're off by a year or two on the valuation, like that's a risk that I'm willing to take.”
George: Shorter VC diligence cycles are more efficient and benefit the market
“It used to, I remember when I started at GA, it would be like, okay, a company's raising money and you know, let's take two months and you turn over every single piece of minutia for a company. Like that's, it's probably more efficient and better overall for t…”
a16z gives sponsoring GPs final authority via single trigger-puller model
“Just like we do at the venture fund, we have a single trigger-puller model, though. We have discussions and deep, robust discussions about investment decisions, but it's ultimately the call of the GP who's sponsoring the investment.”