Do they fire sell major chunks of companies to whomever buys it or how does that game theory out?
What impact does it have on the companies themselves?
When a VC firm says they have a “$500M fund”, what that often means is they have $500M of funds at call. The LPs (investors in the fund) don’t immediately put all that money into a pot that sits there waiting to be deployed. They just agree to make it available as called. In previous downturns those commitments have suddenly become a lot less committed when the fund tries to call them in. So, again generally speaking, there is no pot of cash lying around to be returned. They only called it when it was needed to close a deal at which point it was immediately spent.
As for “assets under management”, you’d probably want to try and read some fine print in how it’s calculated. A fund might try a slight of hand to include the previous “committed” number to pad it and make it look larger than it is. If so, see previous point re returning that. The rest is going to be the current valuation of deployed capital. But that’s a questionable number even in the best of times, and we are not in the best of times. It’s mostly tied up in illiquid private companies and so what there is to return depends on if, when, and for how much they can exit those positions.
Let's take a $5B growth fund. Let's say over 7 years they deployed all $5B of that fund into 100 companies. When you say collapse what do you mean? Do you mean all 100 companies are worthless to acquirers? In what time range? In those 7 years, a16z would have earned 2% revenue ($100M) per year to cover operations. If there fund failed to produce ANY return, they just wouldn't get any 20% carry and their investors money would be completely be lost. For example Stanford's endowment fund would have a minor dent in it for those 7 years.
PE/VC funds rarely collapse. They usually fail to produce returns, people leave, and then they cease to raise their next fund.
In theory there's no effect on the company until they come to raise more money. (I mean, their stocks are worth less, and that might make it harder to retain talent if their stock options are now worthless, but that's industry-wide at this point). Companies who have enough to make it to IPO are basically fine (although it's also not a great time to IPO). But raising money privately on a "down round" is very difficult (although again, if it's an industry-wide downturn that might change things) and commonly you see companies in that situation using tricks to juice their valuation (e.g. offering a high liquidation preference to the new investor so that their headline valuation stays high).
The worst case scenario for a venture fund (not A16Z specific) is that their future funds would be smaller and as a result they would need to make fewer investments and perhaps reduce the firm's headcount. Existing companies are not very affected.
The valuation on all their equity was speculation, it is not based on earnings.
Same thing that happened with FTX/FTT, they sublimate.