New funds, new era? Andreessen Horowitz bucks tech trend with $7.2 billion fund
New funds, new era? Andreessen Horowitz bucks tech trend with $7.2 billion fund
One of the most active VCs in the technology sector has raised a $7.2 billion fund that will focus on established startups, artificial intelligence and gaming. The successful fundraising is in sharp contrast to the disappointment with the amounts other leading funds have recently raised
Venture capital giant Andreessen Horowitz has raised a new $7.2 billion fund that will focus, among other things, on gaming and artificial intelligence. The fundraising is not only one of the largest completed by the company but also relatively significant, given the current slowdown in the technology market and general caution on the part of investors. Furthermore, Andreessen Horowitz's original fundraising goal was $6.9 billion, so the investment giant exceeded its targets despite the challenging economic climate.
The successful fundraising highlights the failure of other large venture capital firms to meet their targets. This month, it was reported that Tiger Global had raised $2.2 billion, only a third of its goal. Last May, Insight Partners reported raising $1.3 billion, compared to a target of $2 billion.
Andreessen Horowitz, also known as a16z, was established in 2009 and is now one of the most prominent investment companies globally. According to the company's reports, it manages assets amounting to $42 billion across 28 funds. The largest fundraising to date was for the crypto fund it raised in May 2022, totaling $4.5 billion, which completed the capital raised for investing in the crypto market and its derivatives to $7.9 billion across four different funds. Not all of this capital was invested due to the significant decline in the crypto market in the last two years.
The capital raised will be divided into several funds, each focusing on different issues. The lion's share, $3.5 billion, will be allocated to "growth" or investing in established late-stage startups. $1.25 billion will be allocated to infrastructure investments in the field of artificial intelligence, $1 billion to applications in the field of artificial intelligence, and $600 million to gaming companies. $600 million will be allocated to what the company calls "American dynamism," an area that includes aviation, space, defense, and manufacturing companies dedicated to what they identify as the American national interest.
In its early days, Andreessen Horowitz was no different from other venture capital firms. Still, since 2011, it has established itself as a particularly skilled player in analyzing future trends. Then, co-founder Marc Andreessen published an article in the Wall Street Journal entitled "Why Software is Eating the World," which became associated with him. Andreessen correctly predicted that the world was moving towards a focus on software and that businesses would reinvent themselves as "software companies." The company successfully invested in companies such as Facebook, Slack, Airbnb, and Lyft, as well as Groupon, probably its most publicized investment at the time.
Since the publication of the text predicting the growing dominance of software companies, the company has relied on the idea of identifying and defining new eras. Among other things, Andreessen Horowitz founded a news venture for the new era in 2021 that it called "Future," which has since been closed. At the same time, it entered strongly into investments in the crypto market and now presented the latest fundraising under the title "New Funds, New Era."
Behind the big words, there is extensive activity. a16z is currently one of the most active companies in the global technology sector. Although it ended 2023 with a 43% drop in the number of investments, 77 transactions, it was still the most active investment company, according to Crunchbase data. The technology giant Microsoft is the only one that surpassed it in terms of investment volume in 2023, thanks to one massive investment in OpenAI amounting to $10 billion. The largest investments made by a16z in the past year were in the payments giant Stripe, where it led a $6.5 billion fundraising, and in the French artificial intelligence company Mistral AI, where it led a $450 million fundraising.
The strength of Andreessen Horowitz stands out against the technology sector as a whole, which has slowed down in recent months. Thus, the first quarter was the weakest in terms of fundraising since 2018. In total, startups raised $66 billion, a 20% decrease compared to the first quarter of 2023, according to Crunchbase. 24% of the investments flowed to companies in the health sector, and 17% to the field of artificial intelligence. Late-stage companies raised $29.5 billion - 36% less than the corresponding quarter in 2023.
Over the years, a16z was known mainly for its founder-focused approach. These were seen in the first and second decades of the 21st century as "geniuses" and many investments were focused on them and the ventures they established. This tendency may explain why Andreessen Horowitz chose to make the largest single investment in their history in Adam Neumann's new residential real estate venture Flow, in which they invested $350 million according to a value of $1 billion, before the company had any activity.
Another characteristic of a16z investments is that these are large investments to create so-called "fat startups" (which are worth over $10 billion). These companies will, in a sense, be the new focus of the capital raised by a16z. According to the company, it already manages assets worth $11 billion in growth companies in three funds, and the focus on large companies comes as part of the market's maturation. "This is the year for growth-stage companies to become Great," they wrote on the company's blog at the beginning of the year and marked it as a year that is no longer focused on efficiency, but on growth and size - both in terms of revenues and market shares and in terms of market value.
First published: 12:00, 21.04.24
