"What's next for Andreessen Horowitz after a wild 2019?"

From Pitchbook, December 5:

This story is featured in the 4Q 2019 issue of the PitchBook Private Market PlayBook.

Marc Andreessen and Ben Horowitz first crossed paths about a quarter-century ago, when Andreessen was the soothsaying co-founder of Netscape and Horowitz was a product expert quickly ascending the ranks at the web-browsing pioneer. At first, they clashed. But before long, the two men developed a certain kind of chemistry.

After AOL acquired Netscape for $10.2 billion in 1999, Andreessen and Horowitz began to poke around for what was next. That same year, they teamed with two other entrepreneurs to create LoudCloud, later known as Opsware, an innovative web-hosting startup that later pivoted to offering Software as a Service. In 2007, Andreessen and Horowitz inked another billion-dollar exit, selling the company to HP for a cool $1.7 billion.

With their bank accounts well-stocked, Andreessen and Horowitz turned their focus to investing full time.

For a while, they were among Silicon Valley's most prominent angels, striking deals on their own. Before long, they decided to formally reunite. And in 2009, the new firm of Andreessen Horowitz launched its first fund, a $300.0 million effort focused on the software space.

In the summer of 2011, Andreessen published his now-famous essay on why software was eating the world. In the ensuing years, the ideas in the piece formed the basis for a16z's strategy. With early investments in companies such as Facebook, Lyft, GitHub, Slack and many more, the firm put its money where its co-founder's mouth was, staking a whole generation of companies that were using software to transform the way people interact, get around and do their work.

In the process, Andreessen and Horowitz turned a16z into one of the most respected VCs in Silicon Valley, a sought-after backer whose presence on a term sheet signaled to the rest of the world that a young startup was on the right track.

This year was supposed to be a triumphal one for the firm, with four of its highest-profile portfolio companies planning public debuts as part of an unprecedented group of unicorns taking the IPO plunge: Lyft, Pinterest, Slack and PagerDuty. All four successfully went public. But the result of those listings hasn't gone quite as planned.

The wave of high-growth but still unprofitable unicorns crashed onto Wall Street just as public market investors began to reevaluate how eager they were to invest in such companies at the sky-high valuations previously bestowed by venture capitalists. One might call it the WeWork effect. Both Lyft and Slack have seen their share prices plunge downward after their public debuts. Pinterest and PagerDuty both showed initial promise, but more recent months brought steady regressions down and to the right.

In the midst of it all, tech watchdog The Information published an in-depth report indicating that a16z's fund returns have also been falling off, with three of its past four flagship vehicles ranking in the bottom half of their respective benchmarks. The sale of shares in companies such as Lyft and Slack was supposed to offer a major boost to those IRR figures. But now, that boost doesn't seem as if it will be as big as it did a few months ago.

All that flux comes during what's been a very busy year for a16z on several fronts. In addition to all those exits, the firm has closed multiple major funds, made dozens of new VC investments and revealed plans to transform its legal structure. It's a cascade of changes that could represent the end of one era at the firm—one marked by its devotion to software startups and its shepherding of a cohort of longtime unicorns toward IPOs—and the beginning of something new.

If that's the case, what will the new era look like? Will software deals continue to be the firm's driving force, or will a16z alight on a new world-eating investment thesis? And after a decade in which it's transitioned from Silicon Valley upstart into a VC powerhouse, can it maintain its place at the forefront of the industry?

The firm declined to comment for this story. So instead, we'll turn to the data to see what a16z has been up to—and what might come next.

Changing tides
In retrospect, 2011 was a clear inflection point for a16z. It was both the year Andreessen published his famous software essay and the year the firm began to greatly accelerate its investment activity—a16z's VC deal count leaped from 24 in 2010 to 58 the following year, per PitchBook data, and that figure has never dipped below 60 deals in any year since.

In the future, we may look back on 2019 as another moment of transformation.

In early April, Forbes published a lengthy feature story on a16z that included two very newsworthy nuggets: One, that the firm was abandoning its traditional venture capital structure to become a registered investment advisor, and two, that it was seeking to raise as much as $2.5 billion for a new late-stage fund. A few weeks later, a16z made the new fund official, announcing a $2.0 billion close for a vehicle called LSV Fund I. At the same time, the firm closed its sixth flagship fund on $750.0 million, which it will use to continue making its usual early-stage investments in the enterprise, consumer and fintech sectors.....

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