Wednesday, April 24, 2019

Andreessen Horowitz isn’t alone in leaving behind VC as we know it — and more company is coming

From TechCrunch, April 2:
This morning, Forbes wrote a lengthy profile of Andreessen Horowitz, the now 10-year-old venture firm that its rivals love to hate but nevertheless tend to copy. It’s a great read that revisits some of the firm’s wins and losses and, interestingly, regrets, including the founders’ early predisposition to talk trash about the rest of the venture industry.

As Ben Horowitz tells reporter Alex Konrad, “I kind of regret it, because I feel like I hurt people’s feelings who were perfectly good businesses . . . I went too far.”
The story also suggests that Andreessen Horowitz — whose agency-like model has been widely replicated by other big venture firms — is re-shaping venture capital a second time. It’s doing this, says Forbes, by turning itself into a registered investment advisor.

But the firm isn’t alone is morphing into something very different than it once was, including an RIA. SoftBank is already one. Foundry Group is one. General Catalyst appears to be in the process of registering as one, too. (It recently withdrew its status as a so-called exempt reporting advisor.) Other big firms with a range of un-VC-like products are similarly eyeing the same move.

They don’t have much choice. While VCs have traditionally been able to dabble in new areas through their limited partner agreements with their own investors, they’ve also faced what’s traditionally been a 20 percent cap on these activities, like buying in the public markets, investing in other funds, issuing debt to fund buyouts and acquiring equity through secondary transactions.

Put another way, 20 percent of their capital could be used to experiment, but the rest had to be funneled into typical venture capital-type deals.

For Andreessen Horowitz, that cap clearly began to grate. An early and enduring believer in cryptocurrencies, marketplaces and applications, the firm grew particularly frustrated over its inability to invest more of its flagship fund into crypto startups. It raised a separate crypto fund last year so it could move more aggressively on opportunities, but according to Forbes, the constraints that came with creating that separate legal entity gave rise to new aggravations.

By becoming a registered investment advisor, Andreessen Horowitz will no longer have to limit its stakes, including in its general fund — the newest of which it’s expected to announce shortly. It will also have the freedom to invest any percentage of its fund that it wants in larger high-growth companies, to buy shares from founders and early investors and to trade public stocks, as Forbes notes.

It’s the same reason that SoftBank is a registered investment advisor and other big firms with more assets will invariably be, as well. As longtime startup attorney Barry Kramer observes, “Like the now-giant operating companies that VCs once funded, like Google and Apple and Amazon, each of which used to play in discrete market segments and now overlap, hedge funds, mutual funds, secondary funds, and venture funds that used to play in discrete market segments are starting to overlap, too.”...MORE
"Andreessen Horowitz Is Blowing Up The Venture Capital Model (Again)"

Andreessen Horowitz Getting Liquid: Lyft, Pinterest etc