The Andreessen Horowitz Effect

I wonder how close this is to the 'ebay' effect, basically before ebay existed there were garage sales and flea markets that people would go to in order to buy junk. Something I was familiar with was old computers, they were just fun to buy for a few bucks and get them running again. Something cool about getting a machine for $5 that you knew sold new for $100,000 up an running 'like new.' (albeit it could be emulated by a modern PC at a much faster rate, that wasn't the point :-)<p>Then Ebay came along and opened up the market to a lot more people, and the people in that market actually had a sense of what some of this stuff was worth (primarily to folks keeping legacy systems alive) and prices shot up.<p>What was worse was that at the flea markets now vendors wanted 10x what they wanted before for their junk. And if you offered them a more typical amount they would say "Nah, I'll just go sell it on Ebay rather than take that offer." So you could get a discount (sort of a real world buy it now) but your leverage was greatly diminished.<p>In the world of investing, and Venture Capital specifically, I think Andreessen Horowitz brought a better understanding of value to the table. That meant that VCs that used to be able to get away with underpaying were forced to stump up closer to market value and that makes them grumpy. Just like I was paying $50 for a DEC VAX that I knew I could have had for $5 before Ebay ruined things.

<i>“They are overpaying for deals,” says one VC</i><p>This is false. If anything they can get lower prices than other investors due to their prestige.<p>(If you're wondering why a VC would say such a thing, it's the one thing a competitor could say that could raise doubts in the minds of LPs, the people who invest in VC funds. AH's successes are obvious, so the only way to spread FUD about them with LPs is to imply that they're paying too much to get into those successful deals, and that their returns will thus be proportionately lower.)

It sounds similar to the pricing effect that Apple has on suppliers. By buying out the existing supply of a component, it drives up the price on the component for everybody else, giving Apple that much more advantage. If Andreessen Horowitz can pull the same thing against other VC's, well that is going to make them that much more profitable over the long haul.