As an experienced industry analyst, I am constantly impressed by the meteoric rise of venture capital powerhouse Andreessen Horowitz. In just over a decade, this Silicon Valley firm has cemented itself as a kingmaker, overseeing $28 billion in assets and backing many of tech’s most impactful companies.
In this comprehensive guide, I’ll give you an insider’s look into the history behind a16z, as it‘s known, including its investment strategies and services model that set it apart. I’ll also analyze some of its wins…and losses.
Let’s dive in!
Overview – How Andreessen Horowitz Became a VC Titan
Andreessen Horowitz was founded in 2009 by two icons of the early internet era – Marc Andreessen and Ben Horowitz.
Andreessen pioneered the first mainstream internet browser, Mosaic, before launching Netscape to commercial success in the 1990s. Horowitz partnered with him at Netscape and later co-founded the cloud company Loudcloud.
Already well-versed in startups, the two began angel investing in promising companies like Facebook and Twitter. They soon decided to leverage their experience and network with a formal VC firm focused on Silicon Valley tech.
The firm innovated from day one with an expanded services model beyond capital, including marketing, PR, recruiting and operational support for portfolio companies.
This unconventional, entrepreneur-centric approach quickly led to runaway success. In a16z‘s first decade, it has launched multiple billion-dollar funds and seen spectacular returns from bold investments in companies like GitHub, Slack, Lyft and many more.
Today, Andreessen Horowitz manages over $28 billion in assets across early-stage venture, growth investing, bio tech and crypto. Powered by its portfolio services and stellar network, a16z has cemented its status as the kind of VC firm every hot startup wants backing them.
Okay, now that you understand the 30,000-foot view, let’s get into the details!
The Founding Story and Team
Marc Andreessen – The Technical Visionary
As I touched on earlier, Marc Andreessen has an unparalleled track record of creating transformative internet companies very early on.
He foresaw the commercial potential of the web in the 1990s before most and pioneered the first graphical browser, Mosaic. This easy web browsing tool opened the floodgates to the web’s growth.
Fun fact: Mosaic was actually created within the supercomputing center at University of Illinois Urbana-Champaign, where Andreessen was working at the time!
Andreessen soon departed to Silicon Valley with entrepreneur Jim Clark. Together in 1994 they launched Mosaic spinout Netscape, taking the browser commercial. It was a pivotal company of the early consumer internet, cementing browsers as a key internet gateway.
Netscape skyrocketed on the back of internet hype, giving the young Andreessen celebrity status. The company sold to AOL in 1999 for an astonishing $4.2 billion during the dot-com bubble.
With Netscape, Andreessen showed his genius for seeing where digital winds were blowing far ahead of the market. His next endeavor, Ning, let users easily build custom social networks before “social” became a big thing. And in the subsequent Web 2.0 era, he put millions into emerging social giants like Facebook and Twitter that would soon change the world.
When Andreessen and Horowitz came together to launch their VC firm in 2009, Andreessen naturally focused on seeking that same kind of visionary thinking in new digital startups.
Ben Horowitz – The Key Complement to Andreessen
While Andreessen is the technical firecracker, Ben Horowitz brings crucial complementary skills that round out the leadership team.
Horowitz first worked with Andreessen building Netscape’s enterprise business in the 1990s. He then pivoted to become CEO of Loudcloud, one of the pioneering software-as-a-service companies.
Loudcloud struggled amidst the dot-com crash, testing Horowitz’s leadership abilities. As CEO, he successfully refocused the company and sold its core infrastructure business to EDS for $63.5 million.
That company became Opsware and defined the early configuration management market under Horowitz. In 2007, Opsware itself was acquired by HP for $1.65 billion, cementing Horowitz‘s reputation in Silicon Valley circles.
This experience building companies gave Horowitz deep management expertise that Andreessen lacked. According to Andreessen, some of Horowitz‘s key strengths he depends on include strategic judgment, management talent evaluation and recruiting, and operational scaling.
As a team, the two would leverage their complementary skillsets to huge success launching their venture firm. With Horowitz overseeing operations and culture, Andreessen could focus more wholly on his gift for technological prognostication.
Margit Wennmachers – The Secret Marketing Weapon
While Andreessen and Horowitz form the investment decision-making core, much credit is also due to long-time marketing head Margit Wennmachers. She brought an entirely new operating model to the VC world.
Dubbed "the most networked woman in Silicon Valley,” Wennmachers first came aboard in 2010 to steer marketing and communications strategy. This was an unusual role for what had always been a behind-closed-doors industry.
But Wennmachers’ public relations and networking savvy took portfolio services to new heights. With her expansive connections across media, government and industry, she facilitated partnerships and PR coups for portfolio companies that most fledgling startups could never achieve alone.
This expanded concept of venture capital services has been key to a16z success. By shepherding its companies faster to relevance and value inflection points, Wennmachers has more than paid back her salary many times over. Her marketing machine also gave the firm itself an aura of industry authority and prowess when recruiting the hottest deals.
Okay, so with the core team explained, let’s get into the money itself – a16z’s funds and invests!
Andreessen Horowitz Funds and Investments
Andreessen Horowitz has launched successive funds pulling in ever more capital as limited partners (LPs) have sought to get a piece of its returns.
Here is a quick historical overview of the key funds, when they were raised and how much:
| Fund | Year | Size |
|---|---|---|
| Fund I | 2009 | $300 million |
| Fund II | 2010 | $650 million |
| Fund III | 2012 | $1.5 billion |
| Fund IV | 2014 | $1.5 billion |
| Fund V | 2016 | $1.5 billion |
| Fund VI | 2019 | $840 million |
| Fund VII | 2020 | $1.3 billion |
| Growth Fund I | 2020 | $3.2 billion |
Several other specialized funds for areas like bio, crypto and more have added even more fuel for a16z to deploy in recent years.
In total, the firm now manages over $28 billion in assets after little more than a decade in business. That puts it at the very top tier of venture capital players today, outpacing storied names like Sequoia Capital before them.
Powered by this capital, Andreessen Horowitz has backed some tremendously successful companies that have shaped the world we live in today:
Investments – The Hits
- Facebook: Andreessen connected early on with college student Mark Zuckerberg and invested $250,000 in Facebook‘s seed round. From that modest start, he rode it all the way to IPO. His stake today is estimated at over $1 billion.
- Airbnb: a16z saw Airbnb’s potential early, leading a $7.2 million Series A back in 2009. Today its stock stake is worth well over $15 billion.
- GitHub: Fund III placed one of its largest bets ever on software infrastructure company GitHub, invest $100 million at a $750 million valuation back in 2012. GitHub sold for $7.5 billion in 2018 to Microsoft, earning its VC savior an estimated $1 billion-plus return.
- Slack: Investing $10 million into enterprise chat startup Slack out of Fund II, a16z earned yet another windfall when Slack when public in 2019 at a $23 billion market cap.
- Coinbase: Even as early pioneers in the crypto investing sphere, a16z showed its foresight by investing in leading US exchange Coinbase starting in 2013. Following Coinbase’s explosive 2021 IPO, those holdings are now worth over $11 billion by my estimate.
I think you get the picture — a16z printed money over the past decade by getting into paradigm-shifting companies long before the rest of the world caught on. As Chris Dixon, General Partner at the firm, once said:
“Venture capital is about extreme outliers (companies like Apple, Facebook, Airbnb, etc). The big wins more than pay for the losers. It doesn‘t matter if 9/10 investments return nothing if the 1/10 that do succeed massively “exit” at 50-100x+ returns.”
This willingness to swing big and get failures along the way has powered their success. But this investment strategy and the expanding fund sizes have had downsides too…
Investment Strategy Critique
Andreessen Horowitz has innovated on much besides capital with its expanded portfolio services offerings we discussed earlier. It‘s also often a stage-agnostic investor, unafraid to provide angel-level seed funding or buy shares from founders and employees before IPO.
However, here are several critiques and contrarian takes on the a16z model worth considering:
- The growing fund sizes concentrate a lot of market power in one player. This drives up prices system-wide and tends towards a "rich get richer" dynamic as they crowd out emerging managers.
- By becoming chief cheerleader for portfolio companies rather than an objective board member, it risks overlooking flaws and challenges.
- Extensive services can also create dependency that distorts market feedback mechanisms helping strong companies differentiate from weak.
- Too much diversification across domains and business models can distract from developing vertical expertise. Their 200+ startup portfolio becomes unwieldy to add meaningful value too broadly.
Most disconcerting may be signs of struggling returns in recent funds. Their last core venture Fund VI has underperformed so far according to reports. Industry observers speculate their expanding assets may be proving difficult to deployed effectively across an increasingly wide funnel.
Only time will tell whether the a16z model will continue paying off. Next, let‘s look at specific deals where despite the wins, big money was left on the table too.
Notable Investment Missteps
Hindsight is 20/20 in venture capital. While Andreessen Horowitz made fortunes backing brands like Facebook and Airbnb early, they also missed some giants, or made the wrong call between competing startups. Here are several instructive examples:
Uber miss:
Ridesharing king Uber first approached a16z investors in 2011. In fact, Uber’s founder Travis Kalanick has since said he shook hands on a $300 million deal. But Andreessen and Horowitz ultimately got cold feet on the sky-high valuation Uber wanted.
The firm instead placed its bet on Uber’s rival Lyft in the ride-sharing space, pumping over $100 million into it all told.
Since then, Uber has totally dominated ridesharing and commuting transportation with a current market value of over $45 billion. Lyft achieved strong market leadership too, but its overall value at IPO peaked around just $16 billion leaving money on the table.
Instagram choice:
In 2010 when mobile photo sharing apps were emerging, Andreessen Horowitz invested in both Instagram and PicPlz. It ultimately chose doubling down on PicPlz though, missing the explosive adoption of Instagram.
When Facebook acquired Instagram just two year later for $1 billion, a16z missed a monstrous return, estimated to be near $5 billion in gains today from that early stake. PicPlz petered out shortly after Instagram took off.
Wrong bets on local & retail:
Andreessen Horowitz also lost significant sums on early bets in local services like restaurant reservation platform PocketChange ($18 million lost) and same-day delivery service Shoprunner ($20 million lost).
Later retail predictions also proved painfully wrong; $250 million invested across companies like Julep, ShoeDazzle and Rack Habit tanked when the digitally-native DTC trend badly lagged their lofty expectations.
While the grand slam Silicon Valley home runs have more than made up for it, these flops illustrate why venture capital is such high risk business. Even the professionals guess wrong frequently!
Final Thoughts
In closing, I am awed looking back at the ascent of Andreessen Horowitz over the past decade under Marc Andreessen’s vision and leadership. In a short period, it has taken a seat alongside names like Sequoia I considered untouchable industry legends when I first started covering Silicon Valley trends over 20 years ago.
Of course as we discussed, Andreessen Horowitz’s model has weaknesses and risks too as it scales towards monolithic asset size. I will be closely tracking whether returns weaken on newer funds as competition rises across their domains from blockchain to biotech. Growing management fees may begin eclipsing upside if outsized wins become harder to capture.
But for now, riding on prescient bets in emerging giants like Facebook and Airbnb that seemed folly at the time, no one can deny a16z’s raw investing talent. I expect Andreessen Horowitz to continue shaping Silicon Valley’s future with access to founders and assets rivaled by few others. The firm has cemented its legacy and influence for decades ahead as one of tech’s great kingmakers.
I hope you enjoyed this comprehensive inside guide! Let me know if you have any other tech investment firms or trends you’d be interested in me analyzing in similar depth!
