Money Makes Money

investments

I read Ben Horowitz' post about their investment in Instagram that made them a 312x return, turning a $250k investment into $78m. Most people would regard that as a shrewd business decision on Andreessen Horowitz' part, but I think it actually comes down to money making money.

Andreessen Horowitz has raised a venture fund worth almost $3bn in the last 3 years. So for them to make a $250k investment represents 0,0083% of their total investment fund. Considering that Instagram ended up being a pivot from the business that they actually invested in, I'd argue that the $250k investment was a "calculated" gamble. Sure, you might argue they backed the entrepreneurs behind the original idea, but that too is a calculated risk / gamble at best. (I'd stick to this opinion regardless of whether or for what amount Instagram was eventually acquired.)

Compare that to Y Combinator that invests an average of $18 000 into approximately 120 startups every year. Or Yuri Milner & Ron Conway that puts $150 000 into any Y Combinator startup that wants it (via Start Fund). As of last year, Yuri Milner alone had a net worth in excess of $1bn (Wikipedia), so putting $150 000 into a startup represents small change.

Their respective returns on these investments are however a far cry from small change, making their investment status a goal for most other investors. Myself included.

Yet, these guys have a head start: they have bucketloads of money. Marc Andreessen co-founded Netscape back in the day. Yuri Milner created DST which has become a premier investor in so many awesome tech companies. And Paul Graham has become the leader of the whole startup community with his work with Y Combinator. So they deserve their success & all these new opportunities now.

The one thing all of them have in common now is that they had one big success as an entrepreneur; one big success that propelled their reputation into the higher echelons of our community & gave them the capital (or access to it) to make all of these investments. It only took one big success.

Ultimately I'd probably be able to make quite a bit of money if I had a $5m venture fund and I could invest $250k into 20 hot startups right now. You could too. Provided we're not totally shit at making our picks.

Money makes money. And it only takes one, big success to get there.