For years, venture capital has followed two distinct paths. Some, like Andreessen Horowitz (a16z), have continuously amassed capital and become “elephants,” yet there are concerns that such massive scale could drag down returns. Others, such as Benchmark, have restrained their scale for years and adhered to being “small but beautiful.” However, there are also doubts about whether they still have a place in an era of expansion by large institutions.
**I. “Cottage Industry”**
Venture capital is often compared to a “mom-and-pop store” or a “cottage industry.” The Benchmark model is often talked about with admiration. It advocates egalitarianism, where partners, regardless of seniority, equally distribute earnings. With a single fund size of $400 – 500 million and 5 – 6 partners, it has achieved consistently high returns. In addition to Benchmark, firms like Union Square Ventures and First Round also adhere to being “small but beautiful.”
**II. The Emergence of a16z**
a16z has broken the mold and taken a completely opposite path from Benchmark. The founders of a16z call their company “anti-Benchmark.” They have continuously expanded, managing $44 billion in funds, having 80 investment partners, opening five offices, and having over 800 portfolio companies. They have also added private wealth management services. In contrast, Benchmark has remained almost static. In 2024, it raised $425 million for its 11th fund, a size similar to that of years ago. Its website has only a login page.
**III. The Battle between a16z and Benchmark**
The two have been in a constant battle, like a head-on confrontation between Coca-Cola and Pepsi. As venture capital grows, many companies follow a16z in expanding in scale, and venture capital is no longer a “cottage industry.” In 2021, an article appeared suggesting that “Benchmark’s VC model is under attack.” Whether a venture capital fund is too large or too small both have problems. The debate centers on returns. There is a contradiction in the capital allocation between general partners (GPs) and limited partners (LPs). Large LPs collaborate with venture capital institutions that expand in scale, while Benchmark refuses to increase the fund size.
**IV. Why Doesn’t Benchmark Want to Expand in Scale?**
Benchmark’s single fund size has never expanded. When a16z ventured into Web3 and raised more funds, Benchmark introduced new partners and continued with its original model. Benchmark believes that there are not enough outstanding companies that can generate huge returns to justify a multibillion-dollar fund size. Its first eight funds had a return of more than 7.5 times the investment. Partner Bill Gurley complains about an excess of capital in the industry and warns that easy money businesses threaten returns.
**V. Who Wins and Who Loses?**
Some people believe that “cottage keepers” and “capital elephants” should coexist and that their strategies influence each other. The key battleground lies in different return targets. Entrepreneurs need to understand the mindset of the venture capital institutions they collaborate with and be vigilant against excessive capital concentration. a16z should not be limited to 1% of companies but should expand opportunities in the financial field. Benchmark should establish a product-led venture capital company and answer why entrepreneurs should choose it.
**VI. a16z in Pursuit of Financial Opportunities**
a16z has begun to experiment with offering services as an added incentive. In 2019, it registered as a financial advisor and transformed into an investment advisory firm. Its structure is like that of a Hollywood talent agency. The founders have gone without salaries for years and invested expenses in the service team. It provides services such as financing assistance and talent scouting for entrepreneurs. This approach has been effective, and other companies have followed suit.
**VII. Unchanged Benchmark**
In 2020, a16z and Benchmark competed for Clubhouse, and a16z won. Benchmark partners questioned whether the “small but beautiful” model was still effective, but fearing poor returns with a large scale, they decided to stick to it. Benchmark has remained unchanged since its inception. Its seed lies in TVI’s view of venture capital. Partners equally distribute profits, bringing high returns to the first fund. The portfolio companies are not machine gears but an integral part. Partners can devote all their time to helping these companies. If the industry undergoes a major transformation, its importance may wane.
