A16Z's David George on How Private and Public Markets Fused Into One

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• The private technology market has grown to represent a staggering \$5 trillion in market capitalization, nearly a quarter of the S\&P 500, indicating a massive shift where the best and fastest-growing companies often reside privately.  Copied to clipboard!
• Companies are staying private longer because private capital markets are deeper and more liquid than before, reducing the immediate need for an IPO, while public markets present structural challenges like high compliance costs and a focus skewed toward large-cap companies.  Copied to clipboard!
• The value creation for top technology companies has dramatically shifted, with 55% of market cap creation now occurring in the private markets, compared to only 12% a decade ago, benefiting growth-stage investors like Andreessen Horowitz.  Copied to clipboard!

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Defining A16Z Growth Fund (Unknown)

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• Key Takeaway: None
• Summary: None

Scale of Private Market Giants (Unknown)

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Public vs. Private Structural Benefits

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(00:08:38)

• Key Takeaway: Private markets offer better control over stock volatility and easier employee management via tender offers, offsetting the public market’s advantage of quarterly RSU liquidity.
• Summary: Structural reasons for staying private include the deeper liquidity of private capital reducing the need for massive public raises and the ability for founders to control stock price volatility. Tender offers allow private companies to provide employees with liquidity (e.g., selling 25% of vested stock annually), serving as a substitute for public market RSU deposits. Founders often prefer the private route to minimize the negative impact of public market volatility on employee compensation perception.

SPVs and Cap Table Control

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(00:17:55)

• Key Takeaway: Founders generally dislike Special Purpose Vehicles (SPVs) because they obscure the cap table, and SPVs carry inherent risk for investors as they represent single-company exposure.
• Summary: Founders prefer direct investment to maintain clarity on their cap table, often pushing back against SPV hucksters who misrepresent the source of capital. SPVs are inherently riskier for investors because they lack the diversification found in traditional funds, meaning a single failure can be devastating. A16Z counsels its founders to avoid SPVs when possible, preferring direct fund investments.

Private Market Pricing and Value Capture

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(00:21:08)

• Key Takeaway: Value creation has massively shifted, with 55% of market cap creation for recent IPOs occurring in the private markets, suggesting private investors often benefit from a valuation discount despite this shift.
• Summary: David George believes A16Z’s portfolio would trade higher in public markets, indicating a cost of capital discount exists in the private sector. Historically, 88% of IPO gains occurred post-IPO; recently, 55% of market cap creation happened privately. Furthermore, public market investors struggle to properly value hyper-growth rates (e.g., 60%+), potentially undervaluing companies that private investors with longer horizons can better appreciate.

Catalysts for Going Public (Unknown)

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• Key Takeaway: None
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AI Demand and Infrastructure Utilization

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(00:34:08)

• Key Takeaway: AI demand signals are the best ever seen in the speaker’s career, and unlike the dot-com fiber build-out, current AI infrastructure (GPUs/TPUs) is immediately utilized with no ‘dark’ capacity.
• Summary: The demand side for AI shows billions of users deriving extreme value, with growth rates faster than the internet or mobile phases. The supply side build-out is being managed with a return-on-capital mindset, allowing for adjustments based on demand signals within 12-month cycles. Crucially, unlike the fiber build-out characterized by dark fiber, every GPU or TPU brought online is immediately utilized, even older generations.

Software Survival Without Model Ownership

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(00:43:06)

• Key Takeaway: Non-model-owning application companies survive by focusing on industry-specific context, providing a ’throat-to-choke’ for support, and shifting toward outcome-based pricing models.
• Summary: Companies without proprietary models must compound knowledge of industry-specific workflows and data to remain relevant, as model owners will focus on more horizontal tasks. These application vendors need to offer strong support, maintenance, and community, acting as the primary vendor relationship. The biggest risk for incumbents is the shift from subscription to outcome-based pricing, which heavily favors newcomers who can adapt their business models quickly.