Reference no: EM133068795
To understand the potential financial impact of doubling assets under management, estimate a16z's "steady-state" annual revenue and its costs before GP compensation using the following assumptions:
i. a16z raises a new $1.5 billion fund every 3.33 years; fund life averages 10 years. So, in steady state, a16z would have $4.5 billion in otal committed capital- 1.7x its current scale-and would invest $450 million per year.
ii. Across its entire portfolio, exit proceeds average 2.5-3x capital invested, consistent with successful VC fund performance.
iii. Management fees equal 2.5% of committed capital and carry equals 25% of capital gains. Ignore thresholds that boost the carry to 30% and the fact that management fees on parallel funds are paid on invested rather than the committed capital.
iv. To calculate costs, estimate average annual cash compensation per non-GP employee. Then increase that figure to reflect additional expenses for benefits, rent, travel, professional services, etc. finally, estimate the number of non-GP employees a16z would require to support a 1.7x increase in scale to$4.5 billion in committed capital. Note that a16z currently has 74 non-GP employees, 43 of whom are operating team professionals.
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