Earlier this week the Wall Street Journal published an article claiming that the celebrated venture capital firm Andreessen Horowitz was lagging behind its elite peers in terms of returns.

The firm then responded with a well-written blog post explaining why this accusation is off the mark. Their response was simply that you can’t measure returns on “unrealized gains.” Until there is a liquidity event – that is, the company gets sold or goes public – it’s just paper returns. And what matters is cash. 

As the post clearly states: “I can’t spend unrealized gains.”

But beyond just a rebuttal, the blog post is a great primer on how the venture capital industry works. We talk a lot about the tech space on this blog, so I thought some of you might find it interesting. 

One of the reasons I like to follow the VC space is that there are many similarities to real estate development. Not only in the way that the funds are structured, but also in the way that the gestation periods are incredibly long.

The post talks about this as a “J curve.” In the early years of a fund, the returns are negative. Money is going out the door to invest in immature and risky startups. And it’s not until the harvesting period (7+ years later) that the realized gains start getting paid out to investors (LPs).

It’s also interesting to note that the exit timing for companies – at least according to Andreessen Horowitz – seems to be increasing (10+ years). This is yet another similarity to real estate development where it seems to be getting harder and harder to build and deliver new supply.

I’ve been spending my mornings this weekend, listening, watching, and reading things. I’m always reading to find content for this blog, but I’ve allocating more time to consumption this weekend. So you might be noticing a slightly different varietal of posts over the past few days.

This morning it’s a podcast called Dorm Room Tycoon. It’s an interview with Andy Weissman, who is a partner with the New York venture capital firm, Union Square Ventures. The topic is “how we invest” and I’m enjoying the discussion.

Andy describes their firm as being boutique and thesis-driven. Meaning they have theses and they look for companies that dovetail with them. But in addition, he also labels their approach as “conversational investing.”

What does that mean?

It means they listen, watch, and read. They blog (all the partners write their own personal blog). They engage and discuss. They put themselves and the firm “out there”. And they don’t pretend to have all the answers or to be able to predict the future. Instead they let their conversations – both internal and with the broader market – help them make their investing decisions.

So why do I bring this up?

Because in my own small way, I am trying to do the same with real estate development, architecture, and city building. I write every day to learn and because I am infinitely curious. If you want to know what I’m thinking about, read this blog.

It’s for this reason that my favorite blog posts are the ones in which there’s lots of discussion in the comment section. It’s the market talking back, telling me whether I’m out to lunch or not. Ultimately, this idea of “conversational investing” is really about iterative decision making.

Here’s the podcast embed in case you would also like to listen:

[soundcloud url="https://api.soundcloud.com/tracks/266734055" params="auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false&visual=true" width="100%" height="450" iframe="true" /]

Regardless, the Dorm Room Tycoon is worth checking out. They have other interviews with people like Malcolm Gladwell and Simon Sinek.

Earlier this week the Wall Street Journal published an article claiming that the celebrated venture capital firm Andreessen Horowitz was lagging behind its elite peers in terms of returns.

The firm then responded with a well-written blog post explaining why this accusation is off the mark. Their response was simply that you can’t measure returns on “unrealized gains.” Until there is a liquidity event – that is, the company gets sold or goes public – it’s just paper returns. And what matters is cash. 

As the post clearly states: “I can’t spend unrealized gains.”

But beyond just a rebuttal, the blog post is a great primer on how the venture capital industry works. We talk a lot about the tech space on this blog, so I thought some of you might find it interesting. 

One of the reasons I like to follow the VC space is that there are many similarities to real estate development. Not only in the way that the funds are structured, but also in the way that the gestation periods are incredibly long.

The post talks about this as a “J curve.” In the early years of a fund, the returns are negative. Money is going out the door to invest in immature and risky startups. And it’s not until the harvesting period (7+ years later) that the realized gains start getting paid out to investors (LPs).

It’s also interesting to note that the exit timing for companies – at least according to Andreessen Horowitz – seems to be increasing (10+ years). This is yet another similarity to real estate development where it seems to be getting harder and harder to build and deliver new supply.

I’ve been spending my mornings this weekend, listening, watching, and reading things. I’m always reading to find content for this blog, but I’ve allocating more time to consumption this weekend. So you might be noticing a slightly different varietal of posts over the past few days.

This morning it’s a podcast called Dorm Room Tycoon. It’s an interview with Andy Weissman, who is a partner with the New York venture capital firm, Union Square Ventures. The topic is “how we invest” and I’m enjoying the discussion.

Andy describes their firm as being boutique and thesis-driven. Meaning they have theses and they look for companies that dovetail with them. But in addition, he also labels their approach as “conversational investing.”

What does that mean?

It means they listen, watch, and read. They blog (all the partners write their own personal blog). They engage and discuss. They put themselves and the firm “out there”. And they don’t pretend to have all the answers or to be able to predict the future. Instead they let their conversations – both internal and with the broader market – help them make their investing decisions.

So why do I bring this up?

Because in my own small way, I am trying to do the same with real estate development, architecture, and city building. I write every day to learn and because I am infinitely curious. If you want to know what I’m thinking about, read this blog.

It’s for this reason that my favorite blog posts are the ones in which there’s lots of discussion in the comment section. It’s the market talking back, telling me whether I’m out to lunch or not. Ultimately, this idea of “conversational investing” is really about iterative decision making.

Here’s the podcast embed in case you would also like to listen:

[soundcloud url="https://api.soundcloud.com/tracks/266734055" params="auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false&visual=true" width="100%" height="450" iframe="true" /]

Regardless, the Dorm Room Tycoon is worth checking out. They have other interviews with people like Malcolm Gladwell and Simon Sinek.