For a megafund like Andreessen Horowitz's $15B vehicle to generate venture returns, it must consistently capture a significant market share—roughly 10%—of all successful outcomes. This transforms their investment strategy into a game of market share acquisition across all stages, not just picking individual winners.
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Applying Conway's Law to venture, a firm's strategy is dictated by its fund size and team structure. A $7B fund must participate in mega-rounds to deploy capital effectively, while a smaller fund like Benchmark is structured to pursue astronomical money-on-money returns from earlier stages, making mega-deals strategically illogical.
Horowitz claims a VC firm's ability to win access to the most sought-after deals is more critical to success than its genius for picking winners. A strong brand that ensures access to competitive rounds can generate top-tier returns even with average picking ability.
A multi-billion dollar exit's impact is relative to fund construction. For a concentrated Series A fund (30 companies), a $20B exit is a "Grand Slam." For a diversified seed fund (300 companies), the same exit is just a "Home Run" because it needs a 200x return, not a 30x, to be a true "fund returner."
Sequoia Capital's Roloff Botha calculates that with ~$250 billion invested into venture capital annually, the industry needs to generate nearly $1 trillion in returns for investors. This translates to a staggering $1.5 trillion in total company exit value every year, a figure that is difficult to imagine materializing consistently.
While overall venture fundraising has declined, a16z's massive new fund highlights a market bifurcation. Large, established platform funds continue to attract significant capital and consolidate power, while smaller and emerging managers find it increasingly difficult to raise money.
Horowitz claims that winning competitive deals is a much larger component of VC success than simply picking the right companies. A firm with a brand and platform that can consistently win the best deals will automatically generate top-tier returns, even with average picking ability. This attracts the best pickers over time, creating a flywheel.
The standard VC heuristic—that each investment must potentially return the entire fund—is strained by hyper-valuations. For a company raising at ~$200M, a typical fund needs a 60x return, meaning a $12 billion exit is the minimum for the investment to be a success, not a grand slam.
The venture capital return model has shifted so dramatically that even some multi-billion-dollar exits are insufficient. This forces VCs to screen for 'immortal' founders capable of building $10B+ companies from inception, making traditionally solid businesses run by 'mortal founders' increasingly uninvestable by top funds.
The firm targets markets structured like the famous movie scene: first place wins big, second gets little, and third fails. They believe most tech markets, even B2B SaaS without network effects, concentrate value in the #1 player, making leadership essential for outsized returns.
David George of Andreessen Horowitz reveals that contrary to the belief that smaller funds yield higher multiples, a16z's best-performing fund is a $1B vehicle. This success is driven by capturing enough ownership in massive winners like Databricks and Coinbase, demonstrating that fund size can be an advantage in today's market where value creation extends into later private stages.
