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.”
“They are running a lot of experiments. It seems to me relatively obvious that some will fail. The flip side is that some of them will work out.”
A former a16z investment partner
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.
Cowboy capitalists
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.”
Two years later, in 1998, Andreessen sold Netscape to AOL for $4.2 billion. He and Horowitz teamed up to launch Loudcloud, a data center automation company, then sold it to Hewlett-Packard in 2007 for $1.6 billion.
Venture was the next act. Horowitz, the no-nonsense manager, would run the firm, while Andreessen, the charismatic visionary, would be its face in the public imagination and at the heart of its pitch: a fund for founders, built by founders, with an outsize operations staff and deep industry connections, to help startups scale.
The founder-first ethos was integrated throughout the firm’s operations. Partners were fined $10 for every minute they were late to a meeting with a founder. When a startup’s funding pitch is turned down, partners must provide a prompt response with a specific reason for the rejection. Turned-away founders are sent Net Promoter Score feedback surveys to gauge their experience.
“People are scared of getting founders upset, which I think is a good thing,” says the former investment partner.
Firm culture encourages staffers to challenge one another’s assumptions. “Marc and Ben make a point of openly disagreeing with each other to encourage that spirit throughout the firm,” another former partner said.
General partners at a16z have check-writing autonomy—a “single-trigger-puller” model, as a separate former partner describes it—allowing individual partners to back founders they believe in, even if their peers are more skeptical.
“I admire that they take big swings; they really embody the cowboy capitalist ethos,” a partner at a rival VC firm says of a16z.
Out of the gate, Andreessen Horowitz showed it wasn’t afraid to pay up to win deals, and scored some big wins. In 2009 it bought about 2% of video service Skype for $50 million. Less than two years later, Microsoft acquired Skype for $8.5 billion, netting a16z a threefold return.
The crypto philosophy
By 2015, Andreessen Horowitz had established itself as among Silicon Valley’s most in-demand investors, going toe-to-toe for deals against elite VC firms like Sequoia Capital and Benchmark. In a glowing profile of Andreessen published in The New Yorker that year, he referred to his crosstown rival, Benchmark’s Bill Gurley, as the Newman to his Jerry Seinfeld.
But in some ways, looking at Andreessen Horowitz in terms of Benchmark was a category error. While Benchmark and a16z battle fiercely for the early-stage deals that are Benchmark’s bread and butter, Andreessen Horowitz also competes for every other stage of venture capital investment—before and after Benchmark.
If Benchmark was a best-in-class race boat cruising the startup waters, Andreessen Horowitz was an aircraft carrier ready to steam toward wherever the action lay.
Cryptocurrencies offered an early demonstration of the model in action. Chris Dixon, a former founder with a master’s degree in philosophy, joined a16z in 2012. A year later he led a $25 million Series B funding round for the cryptocurrency exchange Coinbase.
To edge out a rival VC firm, a16z tapped into its “matrix” of connections. When Coinbase founders Brian Armstrong and Fred Ehrsam visited a16z partner Chris Lyons’s home to watch a fight on television, they were greeted with a surprise visit by the rapper Nas, who would go on to become a limited partner investor in the firm’s “cultural leadership” fund.
The Coinbase investment, which valued the company at $125 million in 2013, would become Andreessen Horowitz’s highest-returning. When Coinbase went public via direct listing in April 2021, a16z returned $4 billion in Coinbase shares to investors.
The massive windfall—enough to pay back the crypto fund’s invested capital and then some—has earned the firm a reservoir of investor goodwill that should come in handy as it chases new opportunities (especially since limited partners were able to lock in the gains before the crypto crash). Still, as one a16z investor tells Fortune, the firm must continue to deliver. “We’ve been impressed with them and their partners ... But no matter how good the brand is, if a firm becomes too big and is no longer performing, we will leave it,” the investor said.
Inside the money machine
Altogether Andreessen Horowitz has raised more than $35 billion since its founding, including a $4.5 billion crypto fund, a $5 billion growth fund, a $2.5 billion venture fund, and a $1.5 billion bio fund—all just last year.
That translates into huge management fees—the annual dues that limited partners pay venture capitalists just to invest their money, regardless of performance. On one of the firm’s latest crypto funds, Andreessen Horowitz commanded a 2.5% fee, which would mean receiving $50 million a year on a $2 billion fund. Applying a similar fee to Andreessen’s funds raised since 2016, the firm is generating about $500 million in fees a year.
Critics accuse the firm of “stacking fees,” or raising so much money that it can profit off management fees alone without relying on carry—or its cut of the actual performance of its investments. As a16z expands into different areas of the financial markets, its growing catalog of assets should generate ever more management fees—a model with parallels to the enormous banks and private equity giants that accumulated billions in assets as they broadened their investing focus.
The inspiration is in Marc Andreessen’s office, where he keeps a picture of John Pierpont Morgan, the Gilded Age financier whose namesake bank is now one of the world’s largest, with nearly $4 trillion in assets.
“I think he intends to build an institution of that stature,” one former partner says of cofounder Andreessen.
Andreessen is fond of citing Morgan’s maxims and his example as a businessman who funded world-changing innovations like Thomas Edison’s light bulb. Internally, a16z partners often invoke a Morgan quote as a sort of strategic refrain: They tell new employees that the firm strives to be a “first-class business in a first-class way.”
$500,000,000
Estimated annual management fees a16z reaps from investors, regardless of performance
In July, a16z announced it was expanding to locations such as New York, Miami, and Los Angeles—the firm billed it as a move to be in step with the times and to become “cloud-based,” but it was hard to miss the statement it made about the VC firm’s ambitions to redefine itself as more than just a Silicon Valley outfit.
Already among the largest VC firms, Andreessen Horowitz has plans to grow its headcount to nearly 700 people, says a former partner.
Scott Kupor, who has long managed the firm’s relationship with its investors, started building out a wealth management offering to compete with the likes of Iconiq Capital, whose roster of A-list clients includes Mark Zuckerberg, Microsoft CEO Satya Nadella, and celebrities like Tom Hanks. The firm is calling the effort Perennial and is expected to begin raising money this January, led by the recently hired Michel Del Buono, a former chief investment officer at Jordan Park Group.
The idea is to manage the personal assets of startup founders as their businesses and careers grow, similar to the way investment banks provide ongoing services to the companies whose IPOs they underwrite.
A16z is also stepping up its political game, becoming an influential advocate in Washington for crypto-friendly regulations. Earlier this year it hired two leading thinkers in the space: Tim Roughgarden, a Columbia engineering professor, and Dan Boneh, a computer science and electrical engineering professor from Stanford, to lead the firm’s crypto research efforts.
With size come all the challenges common to fast-growing organizations, from losing track of what colleagues do to cultural drift. An early policy mandating that investors at a16z have operator experience at a startup is no longer followed, for example.
Some startup founders wonder whether a firm with so many large investments can provide the kind of hand-holding a young business needs, though two current portfolio company founders say the partners and operators who work with them are incredibly attentive.
“They have grown significantly, but it’s clear that when [a16z partner Dixon] is on a call with us, he’s locked into what we’re doing and not spread too thin,” says one.
The hard thing about investing during a pandemic
In his 2014 management book, The Hard Thing About Hard Things, Ben Horowitz, 56, tells readers that the difference between a mediocre company and one that’s magical is “often the difference between letting people take creative risk and holding them too tightly accountable.”
As Andreessen Horowitz snowballs in size and ambition, its ability to maintain the proper balance between risk and accountability is more critical than ever. Like much of the investing world, a16z was swept up in the tech valuation fever that erupted during the pandemic, resulting in some deals that now look batty.
The firm purchased a huge stake in the creator of Bored Ape NFTs, part of a $450 million “seed round” that gave the year-old company a $4 billion valuation. Since then industrywide NFT sales have cratered by as much as 97% from their January peak (a crash that could also affect a16z’s investment in NFT marketplace OpenSea).
Launch House, a startup that brings young entrepreneurs together for one-month-long co-living programs, has hired lawyers for an investigation after Vox reported on troubling incidents including allegations of sexual assault. Several allegedly occurred in 2021, months before Andreessen Horowitz led a $12 million funding round.
And then there’s Clubhouse, the audio chat app that perhaps more than any other a16z investment epitomizes the power, and flaws, of the firm’s approach to investing.
In a series of deals led by Andreessen Horowitz general partner Andrew Chen, the firm kept driving up the price of its own portfolio company: Chen invested in Clubhouse at an $80 million valuation in May 2020; a $1 billion valuation in January 2021; and a $4 billion valuation in May 2021.
Meanwhile a16z’s partners went all in on ginning up content for the audio chatroom company. Comedian Kevin Hart, another limited partner in a16z’s cultural leadership fund, hosted a session on the app. Andreessen was a regular speaker, and Horowitz’s wife, Felicia Horowitz, hosted a regular dinner party on the app where celebrity guests discussed issues like politics and culture.
But Clubhouse’s popularity soon fizzled, and Andreessen Horowitz eventually let up on its constant promotion. Chen, who was also the lead investor in Launch House, recently left Andreessen’s consumer investing team, moved to Los Angeles, and shifted his attention to investing in gaming companies for the firm.
Andreessen’s crypto fund, once its star performer, has shed 40% of its value in the first six months of this year, according to the Wall Street Journal, and the firm has taken on enormous risk by holding highly volatile cryptocurrency tokens. While it’s not clear exactly how many tokens the firm owns, the caveat in its disclosures reminding limited partners that they “could incur substantial, or even total, loss of capital,” suddenly looks frighteningly sobering as crypto prices crash.
While a16z had no direct exposure to FTX, the crypto exchange that went bankrupt in early November, the firm’s crypto assets are unlikely to escape the fallout. And the stunning lack of oversight that enabled FTX founder Sam Bankman-Fried to self-destruct is a reminder of the dangers in deferring too much to founders.
If anything, a16z has been leaning further into its founder bias lately. In August, Andreessen wrote a blog post about the U.S. housing crisis and trumpeted an investment in Flow, a startup that aims to make renting better. The founder of Flow is none other than Adam Neumann, of WeWork infamy.
A couple months later it was reported that Andreessen was backing a startup founded by Android creator Andy Rubin. The New York Times reported in 2018 that Rubin had been accused of sexual misconduct with an employee while at Google and was paid $90 million in a quiet exit package. Rubin has said in the past that the allegations are false.
Messages between Andreessen and Elon Musk, which emerged during a lawsuit related to Musk’s Twitter acquisition, revealed Andreessen’s willingness to bet large sums of his investors’ money on an individual, with seemingly few constraints.
“My growth fund is in for $250M with no additional work required,” Andreessen volunteered in a message to Musk.
The firm ended up investing closer to $400 million in the $44 billion deal, which Musk himself acknowledged was vastly overpriced. Sriram Krishnan, an a16z partner focused on crypto investing, is currently doing double duty as an adviser to Musk, whose reputation as a successful entrepreneur has become increasingly tarnished by his erratic stewardship of Twitter.
“To me that was the most egregious of all,” Columbia professor Sherman says of a16z’s lack of due diligence on Twitter. “If I were a limited partner in the fund from which that came, I would be absolutely outraged … To jump in and say, ‘I’m in,’ with no questions asked—that doesn’t even belong in the same sentence as due diligence.”
Life beyond the valley
Andreessen sipped from a glass of Amrut Greedy Angels 10 Year Old, a whiskey that sells for $842 a bottle. It was May of this year, and tech stocks were in free fall.
“We continue to be in market,” he said. “We continue to be in business. We will continue to do rounds. We’ll continue to make investments—but if this downturn in price and economic activity continues, your prices will definitely reset.”
Andreessen wasn’t speaking on CNBC or Bloomberg TV. He was on the Good Time Show, the YouTube show hosted by colleague Krishnan and his wife, Aarthi Ramamurthy. Over the next 90 minutes, Andreessen opined on everything from tech to his favorite memes.
Like many people with the means to do things their way, Andreessen enjoys a friendly audience. A16z has built its own media operation, allowing the firm to promote its message without ceding control to intermediaries. Twitter is also a favorite medium for Andreessen, who blocks users committing unspecified transgressions.
Lately, Andreessen has taken to tweeting long reading lists. One of his favorite writers is James Burnham, author of The Machiavellians and The Managerial Revolution. The books, some of which date back to the 1940s, seem to hint at Andreessen’s souring on elites and doubts about American politics, though the onetime Obama supporter who later donated to Republican Mitt Romney has kept his political affiliation ambiguous in recent years. In a sardonic tweet directed at reporters supposedly digging into his personal life this month, Andreessen said he was not—among other things—funding political candidates or “plotting any subversion of American democracy and/or coup attempts.”
If there’s any clear fusion of politics and investing in the firm, it’s in the concept of American dynamism, a pro-America investment thesis spearheaded by partner Katherine Boyle. Andreessen and Horowitz helped green-light the strategy, and the firm has been recruiting investors to ramp up bets on defense tech, aerospace, education, housing, and transportation.
But Andreessen’s principles have at times been muddled. In August, he was the subject of widespread media derision after it was revealed that the author of infrastructure investment manifesto “It’s Time to Build” had cosigned with his wife a NIMBYish letter opposing new housing in Atherton, Calif., where the couple live.
The episode marked an embarrassing moment of out-of-touchness that undermined a16z’s message and its aspirations of becoming a firm whose perspective extends beyond Silicon Valley’s narrow field of view. The Information recently reported that some Andreessen Horowitz investors are grumbling about the risky bet on Neumann and its pricey participation in Musk’s Twitter adventure.
As Andreessen Horowitz pushes forward with its transformation, the question is whether its leaders are capable of adjusting their ambitions to the reality on the ground and the needs of its clients or if, like an overly confident startup CEO unwilling to change course, the firm remains locked in its own matrix.
Marc Andreessen wrote about the dangers of delusion many years ago while making the case for why someone might not want to join a startup. “First, and most importantly, realize that a startup puts you on an emotional roller coaster unlike anything you have ever experienced,” he wrote. “You will flip rapidly from a day in which you are euphorically convinced you are going to own the world, to a day in which doom seems only weeks away and you feel completely ruined, and back again.”
Key players on team a16z
With a headcount of roughly 500, Andreessen Horowitz is more than the two names on the front door. A deep and growing bench of investing partners and operators are leading the firm’s expansion (although the top ranks still suffer from a lack of diversity). Here are a few key players on the team.
Katherine Boyle
Focus: American dynamism
Joined: 2021
Katherine Boyle co-leads the firm’s pro-America investment thesis, along with David Ulevitch.
Martin Casado
Focus: Enterprise
Joined: 2016
A Stanford computer science Ph.D., Casado cofounded the startup Nicira, acquired by VMware for $1.26 billion.
Connie Chan
Focus: Consumer
Joined: 2011
The first person a16z promoted to general partner from within, Chan has emerged as an expert on China consumer tech.
Chris Dixon
Focus: Crypto
Joined: 2012
An early Bitcoin believer, Dixon led the firm’s 2013 investment in Coinbase, which turned out to be its most pivotal.
David George
Focus: Growth, public markets
Joined: 2019
George is driving a16z’s push into public equities, opening the door to new investment opportunities.
Scott Kupor
Focus: Investor relations
Joined: 2009
A16z’s first employee, Kupor has led the firm’s efforts to expand into private wealth management.
Jeff Jordan
Focus: Consumer
Joined: 2011
The former OpenTable CEO became a VC in his fifties after stints at Disney and eBay. He’s also on the Airbnb board.
Chris Lyons
Focus: Web3 media
Joined: 2013
Lyons launched the firm’s cultural leadership fund, which includes celebrity investors like Nas and Kevin Hart.
A decade of hot deals and home runs
3 valuable investments:
Databricks
First a16z round: 2013
Current value: $31 billion
Since Ben Horowitz led a $25 million Series A round in the cloud database company, a16z has led four further rounds.
Fivetran
First a16z round: 2019
Current value: $5.6 billion
A16z has been the lead investor in two funding rounds in data-integration startup Fivetran, totaling $600 million.
Deel
First a16z round: 2020
Current value: $12 billion
The pandemic had just begun when a16z invested $14 million in Deel, a remote hiring startup whose valuation has since soared.
3 big returns:
Coinbase
First investment: $125 million valuation; 2013
Exit value: $100 billion
In a VC grand slam, a16z returned $4 billion to its investors.
Github
First investment: $750 million valuation; 2012
Exit value: $7.5 billion
A16z funded GitHub’s entire $100 million Series A round. Six years later, Microsoft acquired it.
Slack
First investment: Co-led $10.6 million investment; 2011
Exit value: $19.5 billion
A16z invested in a gaming firm led by founder Stewart Butterfield. The game failed, the startup became Slack.
This story appears in the December 2022/January 2023 issue of Fortune with the headline, “A venture giant’s risky moonshot: a16z’s high-stakes mission to conquer the rest of the financial world.”
Eric Newcomer is an independent journalist who publishes Newcomer, a newsletter that covers the inner workings of venture capital, startups, and the tech industry. Read and subscribe to Newcomer here.
