a16z's David George on the Most Controversial Bet at a16z & Do Margins and Revenue Matter in AI?

Quick Overview

Andreessen Horowitz (a16z) believes that the historical argument that large funds cannot achieve high multiples is false, pointing to their best-performing $1 billion fund which returned 7x on DataBricks and 5x DPI on Coinbase, attributing success to capturing a sufficient number of winners in growing tech waves where private market value creation is accelerating.

Key Points: a16z's best-performing fund in firm history was a $1 billion fund, demonstrating that large funds can achieve high multiples, with DataBricks returning 7x and Coinbase returning 5x DPI from that fund alone. The majority of dollar gains (53%) from top IPOs between 2017 and 2025 occurred from Series C stage and later, indicating substantial value creation happens after earlier venture stages. The growth fund charter includes fixing 'errors of emission' from the venture team by following on in companies they initially passed on, such as 11 Labs and Deal, based on the philosophy of investing in 'strength of strengths' rather than fearing theoretical competition. The number of public companies has been cut in half over the last 20 years, and the Return on Invested Capital (ROIC) for the Russell 2500 has steadily declined from 7.5% to 3% over 30 years, positioning private markets as the 'big leagues'. For AI companies, revenue matters if it has high retention and high engagement; a lack of usage of AI features is implied if a company pitches with traditional SaaS gross margins, leading a16z to give a 'little bit more of a pass' on current margins. a16z seeks to avoid the 'TAM trap' by focusing on markets with extreme customer pull, noting that the most disruptive forces for incumbents are business model shifts (like task-based pricing over seat-based) followed by UI/workflow changes and data access. The firm views kingmaking skeptically, contrasting their approach of backing already strong companies attracting resources with strategies like 'capital as a weapon' seen in the original SoftBank Vision Fund, which often fails in enterprise.