20VC: a16z's David George on How $BN Funds Can 5×, Do Margins & Revenue Matter in AI & the Most Controversial Bet at a16z
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this compelling episode, David George, General Partner at Andreessen Horowitz, challenges conventional venture wisdom while providing rare insights into one of Silicon Valley's most influential growth funds. George systematically dismantles the myth that mega-funds can't deliver exceptional returns, revealing that a16z's best-performing fund is actually a $1 billion vehicle that has generated massive wins including Databricks (7x fund return) and Coinbase (5x). (00:00) The conversation explores why companies are staying private longer, the evolution of capital efficiency in the AI era, and a16z's contrarian investment philosophy of backing "strength of strengths" rather than avoiding weaknesses. (23:37)
- Core theme: How the venture landscape has fundamentally shifted with the extension of private markets, creating opportunities for large growth funds to capture unprecedented value in the private markets before companies go public.
Speakers
David George
David George is a General Partner at Andreessen Horowitz, where he leads the firm's Growth investing team. His team has backed many of the defining companies of this era, including Databricks, Figma, Stripe, SpaceX, Anduril, and OpenAI, and is now investing behind a new generation of AI startups like Cursor, Harvey, and Abridge. George has become one of the most influential growth investors in Silicon Valley, known for his ability to identify and scale exceptional companies in the private markets.
Harry Stebbings
Harry Stebbings is the host of 20 VC, one of the world's leading venture capital podcasts. He's known for his direct, challenging interview style and ability to extract candid insights from top-tier investors and founders in the venture ecosystem.
Key Takeaways
Invest in Strength of Strengths, Not Lack of Weaknesses
George emphasizes a16z's core investment philosophy borrowed from Ben Horowitz: always invest in a founder's spiking strengths rather than focusing on avoiding weaknesses. This approach helped them make contrarian bets like their $300 million investment in Adam Neumann's Flow, despite public skepticism. (23:37) George explains that when evaluating founders, it's better to back someone with extraordinary strengths in critical areas like brand building, product development, and hiring, even if they have visible weaknesses, rather than backing someone who appears well-rounded but lacks exceptional capabilities. The key insight is that exceptional strengths can overcome weaknesses, but mediocrity in all areas rarely leads to breakthrough success.
Fear of Theoretical Competition Kills Great Investments
One of the biggest mistakes investors make is overweighting the fear of future theoretical competition, which can talk you out of backing exceptional companies. (24:19) George shares examples of missing companies like 11 Labs and Deal because of concerns about what OpenAI or established players might do in the future. The lesson is that if you have a great founder building a compelling product with strong market traction, don't let hypothetical competitive threats prevent you from investing. Market leadership, exceptional execution, and founder quality matter more than theoretical competitive risks that may never materialize.
Revenue Quality Matters More Than Pure Growth in AI
While AI companies are scaling revenue faster than any previous generation of software companies, the quality of that revenue has become more important than raw growth numbers. (30:10) George explains that a16z now focuses heavily on retention and engagement metrics because revenue can be gained quickly but also lost quickly in the AI era. Companies need to demonstrate both high growth and high engagement to justify continued investment. The bar has actually gone up significantly for AI companies because traditional renewal behavior metrics are harder to assess when companies are growing so rapidly.
Private Markets Have Become the "Grown-Up Leagues"
The private technology market has fundamentally transformed from a niche asset class to the primary venue where major value creation happens. (13:34) George reveals that 47% of value creation happens between Series C and Series B, while 53% happens from Series C onwards, meaning the majority of returns are generated in later private rounds. With $5 trillion in private market cap and companies staying private longer, institutional investors need to rethink asset allocation strategies. The quality of public small-cap companies has deteriorated significantly, with return on invested capital falling from 7.5% to 3% over thirty years.
Large Fund Performance Can Exceed Small Fund Returns
Contrary to popular belief that large funds inevitably produce lower returns, a16z's data shows their best-performing fund is actually their $1 billion growth fund. (05:22) George explains that in an environment where private companies are staying larger for longer and tech waves create massive value creation opportunities, large funds can capture more of the value creation that previously happened in public markets. The key is focusing on the number of winners you capture rather than fund size itself. When companies can reach trillion-dollar valuations, large funds with significant ownership stakes can still generate exceptional returns.
Statistics & Facts
- a16z's best performing fund in firm history is actually a $1 billion fund, with Databricks returning 7x the fund and Coinbase returning 5x the fund already distributed. (00:00)
- In analyzing the top 50 IPOs from 2017-2025, 47% of value creation happens between Series C and Series B, while 53% happens from Series C onwards, showing significant late-stage value creation. (06:42)
- The number of public companies has been cut in half over the last 20 years, while the return on invested capital of the Russell 2500 has declined from 7.5% to 3% over 30 years. (14:20)
