The simple answer is that a16z is showing the world how this is done, and so many investors have come knocking on their door that it'd be silly to say no.
First off, they're clearly doing this right. They are more than just the new face of venture capital, they're innovators in technology capital (much like YC). They have a clear mission (as you've just read) flowing from some of the most insightful, experienced and well-connected technology business leaders in the world. Their portfolio is great and they have a compelling case that they are adding value to companies far beyond the money.
Second, this is a nearly-perfect moment to raise for their fund. I know if I was in charge of some serious money in this economic environment I would be haranguing them endlessly to invest. I can imagine they just had to pick a number, and why not take as much as they were offered on the best terms? If things go well, they may need to come in to deals with more money. If the market goes sour, they'll be glad they don't have to raise for a long while.
And by the way, even if you're not interested in VC financing or even being an entrepreneur, please at least check out some of Ben's classic blog entries from the sidebar of this article. I recommend his essential take on corporate politics:
I find the whole thing distasteful, without being able to say why, exactly. Apparently, apart from being able to design a large organisation, CEOs stand apart by knowing other senior executives, both as candidates for jobs within their organisation and as potential customers. It all sounds very caste-like. I don't blame them for trying to make money by getting people a place within the aristocracy.
Yes, the real world can be distasteful at times. I spent years refusing to play the game; preferring to stay strictly idealistic about ability and hard work paving the way. It got me nowhere fast as an entrepreneur. The minute I stopped fighting against how things actually work, success came calling.
I still don't like the notion that your connections can get you the right opportunities radically faster than your ability, but that will always be how the world works. Marc Andreessen would not be what he is today without Jim Clark (the gatekeeper).
People are social beings, and that's the root of the issue. The networks you form, give you radical advantages. Half of success, in my opinion, is your ability, work ethic and willingness to seize opportunity; the other half is who you know.
Most meaningful jackpots in life are guarded by gate keepers. If you want to succeed, far more often than not you're going to need help, and you're going to have to give someone else a cut of the action. Others are inclined to help you once you make them personally invested, that's obvious. People are also more inclined to trust and work with people in their networks - trust by established association. Works the same way with that little piece of paper, a degree, that gets you the stellar job.
Silicon Valley is supposedly a meritocracy. Try getting a meeting with, a contact with, a phone call with, or an email response from - Ron Conway (for example). I don't care how badass of an engineer you are. You can't get anywhere near him without a referral from someone else (the who you know part playing its role).
To some degree it answers why they are raising money in the first place.
Agreed, though, his essay doesn't answer either (A) Why $2.7B in particular, and (B) Why in just three years - other than the fact that purpose people believe in their approach so much that it was easy to do so.
Agreed. The essay answers the question, why is A2Z awesome... but it doesn't provide any reason as to why they want to raise so much (e.g. they see the need to be able to invest hundreds of millions into certain companies), and why now (e.g. there's an epic shift in mobile/internet so it's necessary to invest now).
Basically it's that they don't want to be limited in what they can invest in (be it seed money, venture money, or growth moeny). They have lots of interesting opportunities coming at them and i'm sure they'd not be happy if they were excluded from something they believe in simply for capitalization reasons.
I have a strong suspicion they could have way more capital than 2.7 Bil if they wanted to...they're trying to walk the fine line of having enough capital to work with w/o feeling the pressure that they need to invest in things they don't like.
I agree, every CEO had to learn the proper skills at some point their career.
Jack Welch from GE comes to mind, he is consistently ranked as one of the best CEO's in modern business but he started off as a chemist. Sure MBA's have a little more finance knowledge or management skills but nothing that cannot be practiced, learned, and mastered.
Jack Welch wasn't responsible for the increased leveraging, and horrific choices made after September 2001. Jeff Immelt was. Under Welch, GE Capital was not highly leveraged into subprime mortgages; under Immelt, they took a massive hit on a $20 billion British subprime portfolio, along with junk subprime in Eastern Europe.
"For GE Capital, the business world from 2002 to 2006 was a nearly perfect environment. Executives Gary Wendt and Denis Nayden had aggressively globalized the business" ...
"During that period GE Capital levered up, growing its ratio of debt to equity from 6.6 to 8.1. Profits quadrupled to almost $11 billion, more than the profits of Procter & Gamble or Goldman Sachs."
"For example, the company had left the home mortgage business in 2000 but reentered it in 2004 when it was flying high, buying a subprime lender called WMC Mortgage from a private equity firm (the price was never announced). Home prices peaked in June 2006, yet it wasn't until a year later, with the subprime crisis on the front page of every newspaper, that GE Capital finally decided to bail out. WMC lost almost $1 billion in 2007 before GE dumped it in December."
Thanks for enlightening me. Welch's tenure ended in 2001, by which time 40% of GE's revenues were from GE Capital, who were actively engaged in derivatives markets and had large exposures that would have gone bad even if they hadn't levered up from 2002 to 2006.
There are many other criticisms of Welch's tenure that come to the conclusion that GE did well DESPITE Jack Welch, not because of him.
Here is a tasty link: http://en.wikipedia.org/wiki/Jack_Welch#Criticism
At any rate, I personally think that CEOs are figureheads of companies and the only things about a CEO that makes any difference is
a) how good a head of hair they have
b) how tall they are
c) which ivy league school they attended and if they shared a class with anyone now at Goldman Sachs
At least he was a Chemist, and not one of those idiot Physicists ;)
Well don't get me wrong, there's no reason to cover up what Welch was responsible for. He was obviously no saint (few are). And I don't doubt for a second that he played a role in the broad direction GE Capital took.
His reputation deserves to be hit for the things he actually did wrong. Immelt can take responsibility for his failures.
I presume that they both already have more money than they know what to do with, so I suspect the management fees weren't the primary motivation. Also they have office space, employees, computers, etc. None of which are free. Assuming they are collecting the 2% management fee which is allegedly standard, then most of it is probably going towards running the firm.
I would be interested in learning more about the technology that they use inside of their organization to enable a lot of this. Clearly they've recognized that they need share a lot of information to make this work and to give them a competitive edge.
Does anyone know if they have a dev team in-house to build this stuff?
a16z is taking an incredibly well-structured approach to value-added investing. It's nice to see a strategy and mission that actually explains how they are different and goes beyond generic platitudes like "enable innovation".
Alas, the only winning move with "begging the question" is to not play. Insist on its proper use as a logical fallacy and you're a pedant; misuse it and draw the ire of grammarians and Aristotelians. Solution: "this raises the question."
So true. I move that the expression "beg the question" be stricken from the lexicon. If you use it right, people have no idea what you're talking about. Use it wrong, and people like me get all distracted and discombobulated. Best not to say it at all.
Yeah, I avoid it, in part because it's not even clear that the correct meaning is correct. Originally question-begging and circular reasoning were subtly different fallacies, but they're rarely distinguished anymore. If it's a case where "circular reasoning" (or perhaps "assuming the conclusion") works, those are clearer terms imo.
First off, they're clearly doing this right. They are more than just the new face of venture capital, they're innovators in technology capital (much like YC). They have a clear mission (as you've just read) flowing from some of the most insightful, experienced and well-connected technology business leaders in the world. Their portfolio is great and they have a compelling case that they are adding value to companies far beyond the money.
Second, this is a nearly-perfect moment to raise for their fund. I know if I was in charge of some serious money in this economic environment I would be haranguing them endlessly to invest. I can imagine they just had to pick a number, and why not take as much as they were offered on the best terms? If things go well, they may need to come in to deals with more money. If the market goes sour, they'll be glad they don't have to raise for a long while.
And by the way, even if you're not interested in VC financing or even being an entrepreneur, please at least check out some of Ben's classic blog entries from the sidebar of this article. I recommend his essential take on corporate politics:
http://bhorowitz.com/2010/08/23/how-to-minimize-politics-in-...