#126 What is M.A.N.G.? Is it Taking Over VC?

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In Case You Missed It: The Year-End CFO/Finance Checklists

We’ve seen a lot of different frameworks over the years to keep track of all the requirements for funds at year-end. One of our favorites is breaking things down into four buckets: portfolio companies, investor reporting, compliance/legal, and operations/HR. Here’s some of the top items in each bucket for year-end…

What is M.A.N.G? Is it Taking Over VC?

Over the past week, there’s been a lot of chatter in the VC world about MANG (see posts New VC in town: “MANG” (Apoorv Agrawal at Altimeter) and MANG is eating VC (Clay Norris at Confluence.VC)).

What is MANG? MANG = Microsoft Amazon Nvidia Google.

Why does this matter to the world of VC? From Agrawal: “These companies make up the newest group of prolific venture capitalists in data and AI: Microsoft, Amazon, Alphabet, and Nvidia. Total capital raised in their 2023 deals was $25B+, which is ~8% of the total venture capital raised in North America.”

“The MANG investments are particularly concentrated in Data and AI: their deals raised $23B, a staggering ~30% of all deals in Data and AI. Notable 2023 investments:”

The Demand Side: Investing in Customers 

“MANG investments have evolved post the ChatGPT launch:”

  • Before ChatGPT: Mobility startups: Waymo, Cruise, Rivian, Uber

  • After ChatGPT:  Large Language Model (LLM) startups: OpenAI, Anthropic, Inflection, Adept, Coreweave

Agrawal goes on to share detail on how these big companies are getting big returns for their investments in the form of cloud compute purchases, in both revenue and increased enterprise value. The simple math: Microsoft “invests” $10b in OpenAI (not all cash sent upfront) but “receives” $2.5b/year in revenue (cloud compute purchases). That’s different return profile than a traditional VC!

The Other Side: Concerns/Conflicts From This Model

Bill Gurley weighed in on X (fka Twitter) with some concerns around this “boomerang” style of investing.

“Instead of traditional equity financing, most of the capital commitment is in the form of cloud credits (not cash). These cloud credits are then used by the companies to save costs on computing (one of the largest costs especially for LLM companies). In other words, nearly half of the capital committed in these rounds translates back to revenue for each of the corporates financing the companies.”

“In the short term, this allows Microsoft, Amazon, Alphabet, and Nvidia (MANG) to create a circular loop that boosts their top line while making these venture-backed companies more reliant on their own services. Not to mention, it also gives them an edge to win deals over other VCs who can only offer capital and ~their value~.”

“In the long term, this creates a massive amount of enterprise value to each of the MANG companies participating in this type of financing. Each dollar of revenue generated has a multiplier effect (~10x for MSFT at the time of writing), so each dollar invested has a 5x effect on market cap ($1 × 50% cloud credits x 10x revenue multiple).”

This all adds up to giving MANG big advantages vs. VC funds at scale. However, it has the potential to create real conflicts and mixed incentives. This is a dynamic we’ll continue to watch - stay tuned!

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