In March, we told you that Andreessen Horowitz was targeting $1.5 billion for its fifth and newest fund. This morning, the seven-year-old Sand Hill Road firm is confirming that it has closed on that amount, having secured the capital commitments from its previous investors.
The announcement comes a little more than two years after the firm closed its fourth, multi-stage venture capital fund with $1.5 billion.
The money also comes on the heels of a $200 million fund that the firm announced last November called the AH Bio Fund, a vehicle that’s being used to invest in mostly early-stage startups at the intersection of computer science and life sciences. (We featured its newest bet, Freenome, yesterday.)
Altogether, Andreessen Horowitz has now raised a somewhat stunning $6.2 billion. Managing partner Scott Kupor shared more about the fundraise and what’s changing (and not changing) in a chat earlier this morning. Our conversation has been edited slightly for length and clarity.
TC: How would you describe this fundraise?
SK: It was a great raise. It took a relatively short period of time; we were oversubscribed. It’s consistent with our last funds in terms of size, based on the opportunity set we see in VR and artificial intelligence and core enterprise infrastructure, among other things.
TC: Any changes to your mandate?
SK: No, we’ll still do multistage investing in software companies, with about 70 percent of our bets going into early-stage stuff and the rest going into later-stage stuff.
TC: What about seed-stage investing? Marc Andreessen had suggested a few years ago that the firm might dial back on this except for “fringe” technologies or products.
SK: We’re still doing seed investing. Earlier on, we did a lot of small seed investments where we’d put in $50,000, but we realized that a better approach for us would be to take bigger positions and do fewer of them . . . so a lot of our deals today range from $500,000 to $1.5 million where we’re not just part of a party round but a major investor and those companies become part of the full Andreessen Horowitz family, meaning they can [take advantage] of our [internal] service and networking groups.
TC: You’d also kind of backed off of late-stage deals, the idea being that newer investors could mark up your deals. Has that changed or will it as those non-traditional investors back away?
SK: Yes, if there are greater opportunities or later-stage becomes more attractive. I’m not smart enough to know how to forecast it.
TC: There has been some turnover at the firm. How many GPs do you have currently, and will that change with this new fund?
SK: We have eight GPs. As you know, Scott Weiss is sitting out this fund. In the meantime, we’ve brought aboard Alex Rampell and Martin Casado. We told our LPs that we might hire one to two more GPs over the course of this fund, but we have enough capacity and expertise and domain knowledge [to continue as is].
TC: You raised a separate $200 million Bio Fund in November. In addition to this main fund, will we see more sector-focused funds?
SK: We don’t have anything planned right now.
TC: Like a lot of firms, many of your investments haven’t been able to exit yet. What are the firm’s biggest realized exits up to this point?
SK: Skype, which sold to Microsoft for $8.5 billion; Nicera, which sold to VMware [for $1.2 billion]. We had later-stage positions in Facebook and Twitter [before their respective IPOs]. We were a second-round investor in Oculus, which sold a few months later to Facebook [for $2 billion]. We invested in Bebop, which sold to Google for $380 million. Oh, also Instagram [which sold to Facebook for $1 billion]. In terms of the vintage of our funds, we’re ahead of where other firms are from a liquidity perspective.
TC: Are you worried about the “exit” environment?
SK: The IPO market hasn’t been great but we think M&A will be a major contributor [to the industry’s exits going forward].
TC: What was the good and bad of the feedback you received from LPs?
SK: They like the way we’re positioned strategically. We’ve been very transparent with our LPs; they also like our broad kind of operating services strategy. What’s maybe [problematic] for more the whole industry is that liquidity isn’t where LPs would like it to be. It’s not just the IPO market but there hasn’t been that steady stream of M&A opportunities.
TC: A fewer number of firms, including yours, seems to be raising all the capital. Yet some critics note that bigger funds perform worse than smaller ones. A Kauffman report suggests the same. What do you say to that observation?
SK: I think the Kauffman data isn’t a good set and they haven’t named the firms [that they included in their report]. But what we believe is that we have to get into those few companies that drive all the returns and that we’re set up well to do that.
There’s nothing inherently bad about bigger funds unless you’re putting your money into lots of other places [merely to deploy all your capital] and we won’t do that. If it takes us longer to invest, we’re perfectly comfortable doing that.
I think people have demonstrated bad behavior as they’ve gotten big owing to fee streams. But our deal with our LPs is that, because we’re using fees to support our [125-person] infrastructure, our partners are heavily invested in [producing returns] instead of taking obnoxious amounts of cash compensation.