Famed technology investment firm Andreessen Horowitz lags rivals Sequoia, Benchmark and Founders Fund when it comes to returns, according to documents reviewed by The Wall Street Journal.
The firm, widely renowned as one of the best in the business, about doubled the investment in its first 3 venture funds, the Journal reported Thursday. That return reportedly outperforms average venture capital funds.
But by contrast, Sequoia’s 2003 and 2006 venture funds have both risen 8-fold net of fees, an unnamed source told the Journal, while Benchmark multiplied investors’ money 11 times net of fees in its 2011 fund. Founders Fund saw a sevenfold return, net of fees, in its 2007 fund, Journal reporter Rolfe Winkler wrote.
In exchange for higher fees, top-tier venture capital firms often get their investors early exposure to hot companies like WhatsApp, Airbnb, Uber and Snapchat. But amid a secretive and competitive industry, their returns are rarely publicized, the Journal reports.
Sequoia and Benchmark declined to provide further comment to CNBC. Founders Fund did not immediately respond to a request for comment.
Andreessen Horowitz Managing Partner Scott Kupor responded to the Journal’s article in a lengthy blog post Thursday, writing that the newspaper had incorrectly equated returns with the level that a company is “marked” at by a venture capital firm.
A company’s actual cash and stock at exit — such as, an IPO or acquisition — is the only real measure of success that can be accurately compared across firms, Kupor wrote.
Unlike a hedge fund that values its investments based on their value in the public market, different venture capital funds use their own unique methods to account for a company’s value, according to Kupor, who used team communication start-up Slack as an example.
“By the method the Journal used for comparisons, our ‘results’ on Slack could be nearly [three times] worse than another venture capital firm who made the exact same investment at the exact same time, simply because of a different accounting methodology,” Kupor said. “So, which accounting methodology is right? They are all theoretically ‘right’ in that different accounting firms would likely sign off on each of these as consistent with [Generally Accepted Accounting Principles.] But, at the same time, they are all ‘wrong’ in that none actually tells [limited partners] anything about what a company like Slack will ultimately be worth to the fund when it ultimately goes public or gets sold.”
Further, Kupor wrote, calling the outcome on funds that are less than 5 years old is akin to “reporting the Superbowl winner based on the result of pre-season NFL games or even training camp scrimmages.”
Image credit: CC by Financial Times