A primary function of Andreessen Horowitz's growth fund is to correct errors of omission from its early-stage team. Joking referred to as the "fix the mistake fund," it provides a second chance to invest in companies the firm initially passed on. This internal synergy is a core part of their multi-stage strategy.
VCs often pass on great companies by over-indexing on the theoretical threat of future competition from incumbents like Google. Andreessen Horowitz's post-mortems show this is a common mistake. The better approach is to invest in a founder's unique, "spiking strengths" rather than focusing on a lack of hypothetical future threats.
Contrary to traditional software evaluation, Andreessen Horowitz now questions AI companies that present high, SaaS-like gross margins. This often indicates a critical flaw: customers are not engaging with the costly, core AI features. Low margins, in this context, can be a positive signal of genuine product usage and value delivery.
The SoftBank Vision Fund's "capital as a weapon" strategy is fundamentally flawed because it creates an adverse selection machine. Companies that rely solely on massive capital infusions to win, rather than product or market advantages, are often weaker. True market leaders attract resources organically, making huge, preemptive checks a poor basis for an investment thesis.
While many private founders fear going public, David George of a16z claims he's never met a public CEO who regrets it. Key benefits include easier and often cheaper access to capital compared to private markets, increased transparency, and the discipline it instills. The narrative of public market misery is overblown for most successful companies.
Andreessen Horowitz's investment in Flow, Adam Neumann's new real estate venture, was a bet on his "extraordinary strengths" in brand building, company building, and product hiring. Despite past controversies, the firm believes these "spiking" talents are precisely what's needed to brand the rental market—the largest remaining unbranded consumer experience—and outweigh any perceived weaknesses.
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.
The quality of public small-cap companies, measured by Return on Invested Capital (ROIC), has plummeted from 7.5% to 3% over 30 years. This degradation means high-growth opportunities now predominantly exist in the later-stage private markets. Institutional investors must shift their asset allocation to venture and growth equity, which has become "the big leagues," not a bespoke asset class.