Here’s what Andreessen Horowitz’s leaked decks mean for the future of venture capital

Core Insights - Venture capital is on a predictable path to disruption, with larger funds moving upmarket, creating opportunities for smaller emerging funds to capture market share from the bottom up [1][6][15] - The theory of disruptive innovation explains how incumbents focus on their most profitable customers, leaving less profitable segments open for upstarts to exploit [6][17] - Andreessen Horowitz (a16z) has a significant revenue stream from management fees, estimated to be around 25% or more of its total revenue, with projections indicating it could earn approximately $700 million in fees this year alone [3][11][12] Fund Dynamics - a16z's recent fund has $7.2 billion in assets under management, which could generate $144 million annually in fees during the investment period [9][10] - The firm is reportedly raising a new $20 billion fund, which would yield an additional $400 million per year in fees, illustrating the correlation between fund size and fee income [12][13] - As larger funds pursue bigger limited partners (LPs), they are increasingly moving upmarket, which is a textbook example of incumbents being disrupted [14][15] Market Evolution - Smaller and emerging funds are filling the gap left by larger incumbents, focusing on carry rather than fees, which aligns them more closely with LP interests [15][16] - Historically, smaller funds have provided higher returns to investors, suggesting a shift in LP strategies towards including these new VC funds in their portfolios [16][20] - As megafunds continue to grow, they may face competition not only for deals but also for LP dollars, potentially leading to a transformation into asset management firms [17][18] Strategic Implications - The deployment strategies of megafunds are increasingly resembling those of traditional asset managers, moving away from the core principles of venture capital [18][19] - Non-consensus founders are advised to seek out true VC funds that prioritize early-stage, founder-first investments, rather than consensus-driven funds [19] - LPs are encouraged to diversify their portfolios to include smaller, alpha-seeking funds to regain exposure to true venture capital opportunities [20]