With the financial world in turmoil, this may seem like a terrible time to start a new venture capital firm. But not for Marc Andreessen, co-founder of Internet pioneer Netscape Communications, and business partner Ben Horowitz. The two Silicon Valley entrepreneurs just raised $300 million to launch the firm, dubbed Andreessen Horowitz, say several sources involved in the effort. The pair had originally planned to raise $250 million, but boosted the amount because of strong investor interest.
Andreessen and Horowitz are expected to publicly unveil their firm later this month and declined to comment. But sources say the duo raised most of the money from institutional investors, including Horsley Bridge Partners, a San Francisco firm that invests corporate and government pension-fund money in venture firms. Among the new firm's other backers are prominent tech industry players including Reid Hoffman, founder of the social networking site LinkedIn, and Peter Thiel, former CEO of the payment service PayPal. "Marc is doing some innovative things," says Hoffman, who confirmed his involvement. "I like the direction he is going."
Andreessen Horowitz is expected to concentrate on making investments in technology, with an emphasis on corporate services and Internet businesses that cater to consumers. Investors who have heard the firm's pitch say it is adopting a "super angel" strategy in which a modest-size venture firm invests morsels of money into many startups. "They want to sprinkle as many seeds in the ground as possible," says one investor who was approached to invest in the firm but declined.
There's a twist though: While most super angels finance the first round of a startup and work closely with the company to launch a product, the investor says Andreessen and Horowitz told him they intend to take a more hands-off approach: They'll invest in 70 or 80 companies with minimal involvement in most, and then double or triple down on the dozen or so winners that emerge. The strategy will allow Andreessen to back many more startups than the average venture firm, but with less control.
The launch of Andreessen's firm comes as the venture industry is suffering from the broader financial crisis. Venture firms make their money when they take startups public or sell them to larger companies. But the number of initial public offerings and acquisitions has plummeted. Blogger and investor Paul Kedrosky argues the venture business could shrink by half in the next few years.
Andreessen received unusual support to enter this crowded field. John Doerr, partner with the marquee Valley firm Kleiner Perkins Caufield & Byers, made personal introductions to several of his firm's investors to help Andreessen raise money, sources say. Two other top firms, Accel Partners and Greylock Partners, made similar introductions. Venture firms occasionally help a newcomer this way to forge ties that could prove valuable later on.
Andreessen Horowitz is expected to attract leading entrepreneurs because of the pair's track record. After Andreessen launched Netscape, he and Horowitz founded tech service provider Opsware, which Hewlett-Packard (HPQ) bought in 2007 for $1.6 billion. Andreessen and Horowitz have also actively invested their own money in recent years, financing 36 startups including Facebook and Twitter.
Roger Lee, general partner with Battery Ventures, says the pair's successful fundraising amounts to a vote of confidence. Now they need to live up to the expectations. "There is a risk with any first-time fund," he says. "Until you've done it, you never know."