It sounds similar to the pricing effect that Apple has on suppliers. By buying out the existing supply of a component, it drives up the price on the component for everybody else, giving Apple that much more advantage. If Andreessen Horowitz can pull the same thing against other VC's, well that is going to make them that much more profitable over the long haul.
It is true that there is a limited supply of potential breakout startups. But by monopolizing the market for iPhone components, you can only charge 2x-3x times as much for the product. You aren't going to make tons more money, like if you invest in breakout startups.
The point is more that a16h realizes most of its returns through the small percent of startups that do phenomenally well. These startups have a higher expected valuation, because of potential extrema values.
So a16h is trying to correctly valuate the top 1% (for example) of startups, not that top 5% of startups. This means that the valuations (in this example) could be ~5x more than is what is conventional, and still be accurate valuations.
Comments
It sounds similar to the pricing effect that Apple has on suppliers. By buying out the existing supply of a component, it drives up the price on the component for everybody else, giving Apple that much more advantage. If Andreessen Horowitz can pull the same thing against other VC's, well that is going to make them that much more profitable over the long haul.
I don't think this argument is correct.
It is true that there is a limited supply of potential breakout startups. But by monopolizing the market for iPhone components, you can only charge 2x-3x times as much for the product. You aren't going to make tons more money, like if you invest in breakout startups.
The point is more that a16h realizes most of its returns through the small percent of startups that do phenomenally well. These startups have a higher expected valuation, because of potential extrema values.
So a16h is trying to correctly valuate the top 1% (for example) of startups, not that top 5% of startups. This means that the valuations (in this example) could be ~5x more than is what is conventional, and still be accurate valuations.
To be pedantic, it's a16z...like i18n or l10n. (so you can edit if you want)