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Have you ever had that feeling when you have a thought and then you chuckle to yourself? Then you think about it again and you do some googling? Then your googling turns into a data gathering exercise and a chart? Then you post that chart on Twitter? And then half a million people see it and you realize you maybe should have spent more than 6 minutes making it?
That happened to me this week.
A great anonymous account on Twitter (that everyone should follow) named Endowment Eddie posted a question about whether backing competitive companies was now allowed in venture. It made me think about the times when I'd seen larger firms announce they were investing in a foundation model company and it made me think about how those same firms were invested in other foundation model companies. So I did some digging and ended up with this tweet.
The response was rather enlightening. Showed me a lot about how people think about venture, how things have changed in the venture game over the last 10-15 years, and says some things about how the AI world may unpack.
First, I wanted to share this interview that I did with Eric Newcomer to talk about the chart. And then, wanted to unpack some of what I thought was the most interesting insights to come out of the meme.
The Lay of The Land
Several people pointed out that what you see here is a lot of firms strategy played out in real-time. But what was fascinating to me is that it hasn't always been that way.
In one of the responses to the tweet, I met a new friend, Minh. And he pointed me to a few old quotes from different firms that displayed some very specific strategies.
First? Marc Andreessen at a16z talking about investing in competitors in *checks notes* 2014:
"Our policy, for sure on venture and growth rounds, is that we don't invest in conflicting companies. We only invest in one company in a category. So, if we invest in MySpace, and then Facebook comes along a year later. We're out. We can't do it, right? And so every investment we make locks us out of a category."
Now, here's the thing. That was 2014. In 2014, a16z's AUM was ~$3B. Today? On track for $50B+. More than 10x in about a decade. What may be true of a firm managing a few billion dollars is unlikely to hold true for a firm managing tens of billions of dollars.
Similarly, Minh turned me on to a talk from 2015 by Neil Shen. Granted, he was talking specifically about the strategy they enacted at, what was at the time, Sequoia China, when it come to ecommerce and how they chased different investments in what was clearly an important category:
"We have been really taking the major trend right. I remember back seven years ago, we decided that we should spend enough time, and put enough investment into e-commerce. We had a view that e-commerce will become very, very important in China. Probably even more important, compared with retail in the US. So we amassed probably around 15 e-commerce companies in China. Some of those are not successful, but we did capture the top five to six very successful e-commerce in China.
And that's the way I think good firms should make investments. You actually have a view on the market, and hopefully a little bit earlier than most other people. And you put a big emphasis on the sectors, and making multiple investments in that sectors.
Theres always something which you will miss, because of judgement on a person, or judgement on a particular business model, but that's okay. You always will make mistakes, but as long as you capture all the major trends, you'll be doing very, very fine."
What was interesting was specifically how Shen described an approach that is, effectively, chasing beta over alpha. From his perspective, participating in the market is more important than outperforming the market. We're not talking about the stock market, its about getting involved in a particular market even if you can't predict the winner.
In my conversation with Eric, I dug into how I think about this particular market evolving and how AI companies are starting to differentiate, so hope you enjoy that conversation. I'll leave one point that I think is important to understand.
"I Am Become Asset Manager"
If there's one thing that I find myself coming back to over and over again its the observations that (1) venture capital has become more asset-ized than most are willing to admit, and (2) that most founders don't appreciate the implications of that fact.
Forces like The Unholy Trinity of Venture Capital are reshaping the business model of the loudest models in venture. I've said it before and I'll say it again. These changes aren't necessarily bad. More capital can enable more risk-taking and drive forward innovation. But if you fail to understand that its happening is the only way you end up playing a dumber game. This is how I ended my interview with Eric, and I'll reinforce it here:
"The business model of most of these firms has become asset management. And if they're going to build themselves as asset managers, then you, as a founder, need to treat them as asset managers. People need to take a crash course in how public companies manage the asset managers that buy their stock because that's the way you need to treat some of these firms."
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