Andreessen Horowitz, the venture capital firm run by Netscape co-founder Marc Andreessen and his partner Ben Horowitz, is fast becoming one of the most influential forces in Silicon Valley. On Tuesday, the firm announced that it has raised a whopping $1.5 billion to invest in tech startups. The massive investment pool demonstrates the intense investor interest to get a piece of the latest generation of high-flying Internet companies.
Since its founding in 2009, Andreessen Horowitz has become a powerhouse in Sillicon Valley, which for years has been dominated by relatively old-guard VC firms such as Sequoia Capital and Kleiner Perkins Caulfield and Byers. In just three years, Andreessen Horowitz has already invested in 90 tech firms, including such booming Internet companies as Facebook, Twitter, Zynga and Foursquare. The new fund brings the total amount the partners have raised to $2.7 billion.
“We really think we’re at a very important point with respect to innovation right now,” Horowitz said in a phone interview. “There is a very large number of opportunities to start important new tech companies because of platforms that are in place that didn’t exist a few years ago.” The biggest platform, of course, is the Internet itself, which now has 2 billion users worldwide.
Venture capital firms raise large pools of money from outside investors. Horowitz said his firm had raised money from four categories of investors: educational endowments, charitable institutions, so-called “family offices” investing private capital, and “funds of funds,” which are portfolios made up of funds, as opposed to individual assets.
The VCs then spread that money around to many small startups hoping that some portion of them will enjoy huge success. Horowitz said in general, 97% of the venture capital returns in any given year come from 15 investments, among the thousands that receive funding.
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In a blog post, Horowitz said that the goal of the firm is to help match the entrepreneurial expertise of the firm’s general partners, which include Jeff Jordan, Peter Levine, John O’Farrell, and Scott Weiss, in addition to Andreessen, with young CEOs guiding startups through the difficult process of growing their companies.
“Marc and I share a simple belief that became the basis for our new venture capital firm,” said Horowitz. “In general, founding CEOs perform better than professional CEOs over the long term, and a venture capital firm that enables founding CEOs to succeed would help build the best companies and yield superior investment returns.”
Andreessen Horowitz’s new investment pool consists of a $900 billion main fund, and a $600 million so-called “parallel” fund, which Horowitz said would be invested on a more “opportunistic” basis. The New York Times first reported the new funds last week.
Venture capital investment suffered along with the rest of the economy following the financial crisis, but it appears to be slowly coming back — though nowhere near the levels of the Internet boom and bust of a decade ago — according to a recent report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters. The report found that venture capitalists invested $28.4 billion in 3,673 deals in 2011, an 22% increase in dollars and a 4% rise in deals over 2010.