Should VC be Public?

By Keith Teare • Issue #281 • View online

After Sequoia Capital’s reorganization last week, rumors are spreading that Andreessen Horowitz is considering a public offering. Whether true or not it begs an important question. Should VC seek to list publicly and trade on Wall Street? Or should it remain open only to large fund investors and wealthy families?



After Sequoia Capital’s reorganization last week, rumors are spreading that Andreessen Horowitz is considering a public offering. Whether true or not it begs an important question. Should VC seek to list publicly and trade on Wall Street? Or should it remain open only to large fund investors and wealthy families?

The Information published the speculation or rumor. The publication is very well informed in general so it is prudent to assume there is a fire in the smoke. It also aligns perfectly with the evolution of the asset classes within venture capital – seed, venture, and growth.

As with most products, as they evolve, the competitors start to look alike in features and structure. Usually following on the heals of who is defining the market.

With venture, it is easier to say who is not defining the market than saying who is. Clearly, the past couple of years has seen the growth investors with mega-funds – Tiger Global, Coatue, Insight, Softbank – and the private institutions entering venture later – Blackrock, Fidelity, and others – as the key players shaping the market.

Andreessen decided early to morph from a VC fund to an “investment advisor” and Sequoia did the same last week. However, these are both reactions to events and not the end game. The end game is to be able to play in the emerging big leagues. In order to do that, a firm has to be able to command enormous resources. Why? Because others can. And the entity with the largest checkbook focused on long-term outcomes can buy its way into almost any deal. Tiger is operating fast, at scale with professional diligence and lightning pace.

For a venture fund to compete it needs to do the same.

The first challenge is to command sufficient assets to attract large volumes of capital cheaply. Hence Sequoia choosing to aggregate all its assets under a single entity.

A public listing is another way to aggregate assets under one roof. However, it additionally enables liquidity for the investors. Aggregate assets with high growth and the markets will give you capital. The difference to a traditional venture fund is large. Venture funds pay 2-3% of the fund annually in fees and 20% of the profits, after any hurdle, in carried interest. The cost of capital to the fund is very large. Public market investors invest in your stock and you keep 100% of the profits whilst setting fees (expenses) where you feel they should be.

So, yes, successful, scalable venture capital can and should list on Wall Street. Then there is another outcome, arguably even more important than the benefit of a public entity is to the fund managers. The public is allowed to buy stocks. They are excluded from investing in startups and in venture funds. But what if the best curators of startups are listed? Then ordinary investors could choose to invest in their funds and so curate the curators. The benefits of the wealth produced would no longer reside in the hands of the few but would be widely distributed.

Think of the Robinhood-centered crowd investing that propelled various questionable stocks to the moon. Now imagine that same energy released onto the venture landscape. Raising funds would become a thing of the past and venture capital could focus on what it is good at (ar at least some are) – finding and investing in great startups.

So I do believe that the best, large, funds will eventually be public companies. Where does that leave the seed stage? As this week’s “Tweet of the Week” illustrates, the returns from seed managers are very good. Often well ahead of those from later stage funds and significantly ahead of the market in the best cases. But each seed fund is too small to be able to leverage that into an Andreessen or Sequoia scale plan. However, in the aggregate, the seed stage is very attractive. Today there are no aggregators of seed-stage investing except for a small number of seed-focused fund-of-funds. That I predict, will change.

More in this weeks video, as well as this week’s startup of the week – Bitcoin.


Should VC be Public?

Why Andreessen Horowitz Might Go Public

Historically, VC firms were too small to go public. But that may soon change.

Amid a massive upheaval in venture capital, the largest firms are starting to look more like public companies in size and structure. Among them, Andreessen Horowitz stands out. I predict it will prepare to go public as early as next year.

A public listing would accelerate an expansion at the firm that is already underway. In the past three years, Andreessen Horowitz has raised $12 billion, among the most for Silicon Valley VC firms, and is set to raise another $6.5 billion. The number of people working on its investment staff has increased 170% to 70 in the last four years, topping rivals like Sequoia Capital and Accel. And it has multiplied the number of funds focused on specific industries like crypto, biotech, and gaming.


Is Sequoia’s fund restructuring really a game-changer for VC? | PitchBook

The VC industry appeared to reach something of a watershed moment this week when Sequoia fundamentally restructured its vast portfolio into a single master fund.

Put simply, Sequoia plans to gather up all its fund commitments for its US and European vehicles and decant them into the newly minted Sequoia Fund, which will act as an LP and redistribute capital into its traditional venture funds while simultaneously holding onto companies after they go public.

With the announcement, Sequoia declared that as far as its business is concerned, the venture industry’s standard 10-year fund cycle is “obsolete.” It’s an innovative move for sure, and one that is perhaps overdue. But while it may help solve some problems, it could also be creating new ones.

The new model tackles a number of issues for Sequoia. The big one is flexibility. The firm can now hold onto its most valuable portfolio investments for longer in the hope of realizing bigger returns at a later date. Meanwhile, investors won’t be tied down with multiyear commitments, and will instead be investing into an open-ended portfolio. It’s a win-win situation, or so it would seem.


Sequoia’s open-ended fund could change VC 

In an industry where little has changed in a half-century, Sequoia Capital announced a big structural overhaul. The firm is creating a new open-ended fund, the Sequoia Fund, which will hold positions in some of its companies that have gone public.

Sequoia will still have closed-end subfunds underneath the Sequoia Fund to focus on seed, venture, growth and so on. And the new fund structure only applies to its U.S. and Europe operations, Sequoia’s Roelof Botha wrote in a post announcing the changes. It’s not clear when or if it might apply to the firm’s India and China branches.

It’s a striking move from an industry leader. If Sequoia were happy to just cash checks, it might not have made the change. But the firm has prided itself on staying hypercompetitive in an industry being roiled by outsiders like SoftBank and Tiger Global.

  • Sequoia has long talked about holding shares of companies long after they go public. Botha is still a board member at Square, for example. The traditional VC fund structure, where funds typically have a 10-year lifespan, doesn’t easily accommodate that.
  • Sequoia now holds $45 billion in public stock alone, on which it has $43 billion in gains.
  • The new structure allows Sequoia to capture more of the upside when a company goes public and rises in value afterwards.

Sequoia’s not the first to go evergreen or invest in public companies. Sutter Hill Ventures has long been the exceptional open-ended fund among Bay Area investors. Maverick Ventures is another example. And corporate funds like GV are often evergreen.


Andreessen Horowitz plans to raise $6.5bn for new venture funds — Private Equity News

Andreessen is seeking roughly $4.5bn for its third growth fund, and about $2bn for its eighth main early-stage fund


The current value of the top 30 YC Companies is about $575 billion

Someone asked what the total value of YC companies was, so I tried calculating it. The current value of the top 30 is about $575 billion. When we started YC, I would have been astounded if you’d told me it would one day be $5.75 billion.

– Paul Graham (@paulg)02:18 — Nov 01, 2021


Apple’s War on the Profiling Economy

Apple’s Privacy Features Have Cost Social Media Companies Nearly $10 Billion in Revenue

As a result of its privacy features, Apple has cost social media companies including Meta, formerly known as Facebook, Twitter, Snapchat, and YouTube, nearly $10 billion in revenue in the second half of 2021, according to an investigation by the Financial Times. The Financial Times found that most users have opted out of tracking using Apple’s App Tracking Transparency (ATT) framework, a requirement that forces developers to ask users if they wish to be tracked across other apps and websites. Data in the report from Lotame, a third-party company, suggests that Meta, YouTube, Twitter, and Snap lost $9.85 billion in revenue in the third and fourth quarters of 2021, with Snapchat and Facebook being the most impacted.

Lotame, an advertising technology company whose clients include The Weather Company and McClatchy, estimated that the four tech platforms lost 12 percent of revenue in the third and fourth quarters, or $9.85bn. Snap fared the worst as a percentage of its business because of its focus on smartphones, while Facebook lost the most in absolute terms because of its size.

ATT has caused social media giants who rely heavily on their ad models, such as Meta, to be remarkably worried about the repercussions of giving users a choice on whether they wish to be tracked or not.


Metaverse or no Metaverse. That is the Question

Facebook’s Meta mission was laid out in a 2018 paper declaring ‘The Metaverse is ours to lose’

Jason Rubin, Meta’s vice president of metaverse content, wrote a document in 2018 that helped pave the way for Mark Zuckerberg’s big announcement this week.


The Plain View

Hey, everyone. Sci-fi god William Gibson once called cyberspace a “consensual hallucination.” Does that mean the metaverse is a non-consensual one?

Steven Levy

Zuckerberg had always dreamed of making Facebook into an operating system based on social connections, and his first major effort, Facebook Platform, had fizzled because outside developers discovered that writing apps for Apple iOS or Android made a lot more sense than creating apps that ran on Facebook. But Zuckerberg’s biggest worry was that Facebook would be dependent on the goodwill of the companies controlling the big mobile platforms.


Mark Zuckerberg, Meta promise a metaverse that video game companies are already building — The Washington Post

The metaverse is being built with or without Facebook.


No One Asked for the Metaverse. And do we want one at all?

Matthew McFarlane | Oct, 2021

Some see it as merely a more immersive extension of our current digital life; other times it’s clearly meant to be a fully-formed alternate reality where people can live, work, play, and — crucially — spend money. In his recent article in The Atlantic, “ The Metaverse is Bad,” Ian Bogost takes on a question that business and technology publications have so far mostly avoided — do we, as a society, actually want a metaverse?


Mark Zuckerberg should quit Facebook, says Frances Haugen

Whistleblower says a new CEO should prioritise online safety over Meta restructure

Facebook whistleblower Frances Haugen has delivered her strongest call yet for Mark Zuckerberg to step down as chief executive of his social media empire, saying the business will be better off with a leader who focuses on user safety.

Frances Haugen said Facebook’s parent company, rebranded Meta last week, is unlikely to change if its founder remains in charge. Speaking at the Web Summit in Lisbon, the former Facebook employee, who has leaked tens of thousands of internal documents detailing the company’s struggles with user safety and misinformation, also criticised Zuckerberg’s “unconscionable” decision to invest in its metaverse concept instead of focusing on fixing its current problems.

Continue reading…


Startup of the Week

The Bitcoin White Paper Was Released 13 Years Ago — Bitcoin Magazine: Bitcoin News, Articles, Charts, and Guides

The research paper detailing the engineering and design requirements to enable the first distributed, uncensorable, electronic digital cash system to come to life was released 13 years ago. The Bitcoin white paper publicized the long-sought resolution to the double-spending problem of all previous attempts to build digital cash.

However, contrary to popular belief, the invention of Bitcoin by Satoshi Nakamoto wasn’t precisely an unprecedented construction. The quest for digital cash had started many years before the Bitcoin white paper was published, and Bitcoin is more accurately seen as the culmination of decades of research and development. Satoshi brilliantly applied some tweaks and puzzled it all together to devise the Bitcoin network and its consensus protocol.

Bitcoin marvelously joins together digital signatures, proof of work, public-key cryptography, hash functions, timestamps, block rewards, transaction fees, mining difficulty adjustment, Merkle Trees, and the concept of a peer-to-peer network run by independent nodes. This unique construction allowed the double-spending problem to be solved and the soundest form of money ever created to emerge.

Each of these pieces was built upon previous knowledge. The white paper cited eight of such prior developments, hinting at how the pseudonymous inventor arrived at the requirements for creating Bitcoin.


Tweet of the Week

Link to Tweet Stream

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