Evaluate the following a16z organizational policies and practices

Learning Goal: I’m working on a business multi-part question and need an explanation and answer to help me learn.1. Was venture capital an attractive industry to enter in 2009? What entrepreneurial opportunity did
Andreessen and Horowitz see?
2. “To succeed as a VC, you have to do three things really well: source, pick, and win” (case, p.8). What
does a traditional VC firm do to source, pick, and win? How does a16z approach these key success
factors differently than other VC firms?
3. If you were a first-time founder of a tech startup seeking Series A investors, would you find a16z’s
value proposition attractive? 4. Is a16z’s big investment in its operating team likely to yield a positive return? Should other top-tier
VC firms copy this approach? 5. Evaluate the following a16z organizational policies and practices: a) criteria for hiring General Partners;
b) compensation approach for GPs; and c) co-founders’ governance rights. How important will each
be to the firm’s success? 6. Should a16z seek to double its assets under management over the next two years? If you support
rapid expansion, would you diversify into other sectors (e.g., life sciences, clean tech) and/or
geographies (e.g., China, New York)?
7. To understand the potential financial impact of doubling assets under management, estimate a16z’s
“steady-state” annual revenue and its costs before GP compensation using the following simplifying
assumptions:
i. a16z raises a new $1.5 billion fund every 3.33 years; fund life averages 10 years. So, in steady
state, a16z would have $4.5 billion in total committed capital – 1.7x its current scale – and would
invest $450 million per year. ii. Across its entire portfolio, exit proceeds average 2.5-3.0x capital invested, consistent with
successful VC funds’ performance.
iii. Management fees equal 2.5% of committed capital and carry equals 25% of capital gains. Ignore
thresholds that boost the carry to 30% and the fact that management fees on parallel funds are
paid on invested rather than committed capital.
iv. To calculate costs, estimate average annual cash compensation per non-GP employee. Then
increase that figure to reflect additional expenses for benefits, rent, travel, professional services,
etc. Finally, estimate the number of non-GP employees a16z would require to support a 1.7x
increase in scale to $4.5 billion in committed capital. Note that a16z currently has 74 non-GP
employees, 43 of whom are operating team professionals.
Requirements: depth

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