Andreessen Horowitz Conquered Venture Capital Without Breaking a Sweat. Gobbling Up the Rest of the World Won’t Be So Easy
A16z is betting its startup growth recipe can launch its own business far beyond Silicon Valley. Can its ambitions defy a tanking tech market?
In a new experiment for Newcomer, I’m co-publishing this profile of Andreessen Horowitz with Fortune. I co-wrote the story with Fortune Term Sheet author Jessica Mathews. You can also read the story on Fortune’s website here.
By Eric Newcomer and Jessica Mathews
During the first week of November, Marc Andreessen and Ben Horowitz, two of the most recognizable names in venture capital, put on a show for their firm’s backers—an audience of gold-plated endowments, sovereign wealth funds, and pension plans.
The three-day affair was held virtually on Hopin, an online platform funded by the VC firm, and paired with in-person dinners for more than 100 guests in New York City and at the posh San Francisco sushi restaurant Pabu Izakaya.
Amid a battery of distractions competing for the audience’s attention—from jarring economic data, to the war in Ukraine and midterm elections—Andreessen Horowitz’s coterie of fund managers stayed on message, framing the market turbulence and tumbling tech valuations as an opportunity.
More than ever before in the firm’s history, Andreessen Horowitz’s partners needed to impress.
By the end of last year—a decade after Andreessen Horowitz, or a16z, was founded—the firm was riding high with $55 billion in assets under management, more than three times the amount in 2020. That sum, massive by the standards of Silicon Valley venture capital firms, represented an accumulation of shares in startups and crypto tokens during the best time for tech investing since the dotcom boom.
Nearly a year later, Andreessen Horowitz is navigating the worst market for tech since the firm was founded. Coinbase, the company that generated the highest return ever for the firm, is down about 80% so far in the stock market this year. Share prices of other now-public a16z investments, such as Airbnb and Affirm, are also down sharply. And a few of its still-private companies, including Instacart, have cut their valuations significantly. Meanwhile, one of the largest exchanges in the crypto industry has collapsed, throwing the fate of the entire digital asset industry, where a16z has pledged billions, into question.
“Andreessen Horowitz has an awfully good track record to point to … But that was then, and this is now,” says Len Sherman, a professor at Columbia Business School.
If investors are getting antsy and reassessing their bets in a shifting market, they’re not alone. Andreessen Horowitz is itself looking beyond the venture business, taking steps to become a more versatile financial creature that can tap new pools of capital and weather changes in the startup funding climate.
This evolution, begun a few years ago but all the more pressing today, aims to position the firm as a sort of Goldman Sachs or J.P. Morgan of the West. If there’s money to be put to work in technology, Andreessen Horowitz is there to play with it. The firm will launch a private wealth management service in January, opening the door to invest the personal funds of business executives, according to a source. A public market investing effort is being led by David George, formerly with General Atlantic. And an expanding collection of academics and policy wonks are being added to the payroll, which now numbers more than 500 people compared with 240 in July 2021.
In a sense a16z is following its own recipe for turning startups into large companies—prioritizing growth while hoping to dodge the potentially fatal dangers that come with it. Based on the more than $35 billion the firm has raised in the past seven years, a16z is almost certainly reaping about $500 million a year on management fees alone—a sum that stands to grow even more as the firm sprawls into new markets.
“They are running a lot of experiments,” says a former Andreessen Horowitz investment partner. “It seems to me relatively obvious that some will fail. The flip side is that some of them will work out.”
There are plenty of reasons why venture—and Andreessen Horowitz specifically—might not be able to keep scaling: Larger funds and bigger bets may hinder the outperforming returns that have attracted limited partners; Andreessen Horowitz may find it’s not as well suited for the public markets as it has been for the private ones; and star partners may leave in favor of building their own brand rather than being another cog in the wheel.
Meanwhile cofounder Marc Andreessen, 51, keeps leaping headfirst into drama. Andreessen, a Facebook board member, recently invested the firm’s money in two ostracized technology executives’ new companies. He’s grown contemptuous of the media. He thrust the firm into Elon Musk’s chaotic $44 billion Twitter takeover with a nearly $400 million investment, underscoring a founder-first mindset toward investing that might not fly outside the venture world.
While the firm has been reticent about its plans, and its partners declined to discuss them on the record, Fortune spoke to more than two dozen a16z insiders, limited partners, and portfolio companies, as well as former partners and VC rivals, to get a clearer picture of the venture industry’s ambitious moonshot.
Andreessen describes his firm as a portal where entrepreneurs enter the “Matrix,” a place where people can cut through the expectations and barriers of conventional business reality and shape the universe to their will. “When founders come to work with us, the term that Ben and I use is, it’s like plugging into the Matrix—you basically get access to the world,” he said on one of the firm’s self-published YouTube shows in October. It’s a concept the duo may need for their own mission.
By the time Marc Andreessen published his seminal essay “Why Software Is Eating the World” in 2011, Andreessen Horowitz had already made a dramatic entry onto Sand Hill Road’s venture capital terroir.
Mixing Andreessen’s mystique as the father of the web browser, Ben Horowitz’s cred as a seasoned startup operator, and the in-house marketing prowess of PR pro Margit Wennmachers, the firm created an elite aura that overshadowed its newbie status in the venture club.
The two founders made the media rounds, sharing war stories, as they launched their $300 million inaugural fund in 2009. They told Fortune about a snarky email that Horowitz, upset about a media leak, sent his boss at Netscape Communications in 1996.
The boss, Netscape CEO Marc Andreessen, replied, “We are getting killed killed killed by Microsoft! You’re destroying the value of the company, and it’s 100% server product management’s fault. I’m just trying to help. Next time, do the f–--ing interview yourself. F--- you. Marc.”