Andreessen Horowitz Starts Second Fund

By CLAIRE CAIN MILLER

Last year, when Marc Andreessen set up shop on Sand Hill Road, the tree-lined home to Silicon Valley’s venture capital firms, he was already a big name.

The Midwestern transplant, had co-founded Netscape, which made the first popular Web browser, and Opsware, which Hewlett-Packard bought for $1.6 billion. But he wanted to prove that he could become one of the storied venture capitalists who invest in the next big thing.

In 16 months, Mr. Andreessen’s firm, Andreessen Horowitz, which he started with Ben Horowitz, co-founder of Opsware, has earned a solid reputation among entrepreneurs because it helps founders run their companies. It has also managed to break into the top ranks of venture capitalist firms by investing in some of the most competitive deals, like Foursquare and Zynga.

On Wednesday, Andreessen Horowitz cemented that status when it announced that it has raised $650 million for its second fund. The size of the fund is unusual and all the more remarkable because the firm is so new to the scene.

Although it is too early to judge the firm’s financial success, Andreessen Horowitz represents a new breed of venture capitalist who is financing new kinds of start-ups. They are shaking up an industry in need of change because returns for the decade ending in June were a negative 4.2 percent.

Venture capitalists in Silicon Valley are finding that the competition for the best deals is again highly competitive. The valuations of start-ups are soaring, up fourfold in the last year, Mr. Andreessen said, which means that investors have to pay more to buy pieces of companies.

The fiercest competition is for very early-stage, or seed, investments in entrepreneurs just starting out, which is typically for relatively small amounts of money — between $25,000 and $200,000.
This kind of investing has been growing rapidly while venture investing overall has slowed. In the three months ending in September, overall financings shrunk 7 percent from the same period a year earlier, to $4.8 billion, but investments in companies raising money for the first time ballooned 60 percent to $1.2 billion, according to PricewaterhouseCoopers and the National Venture Capital Association.

Mr. Horowitz and Mr. Andreessen are two of the major players in this new wave of early-stage financing, known as super angel investing. Unlike typical angel investors, who invest their own money in fledgling companies as a hobby, super angels invest their money and other people’s money as a full-time job.

The two are also simultaneously at the forefront of a second trend – super angels going pro and morphing into venture capitalists by also investing in more mature companies and building a firm instead of investing alone.

These V.C’s, which also include firms like Floodgate, First Round Capital and True Ventures, could reshape Silicon Valley. Meanwhile, established venture capital firms like Greylock Partners and Kleiner Perkins Caufield & Byers are latching onto the trend by starting seed investment funds within their firms.

Mr. Horowitz and Mr. Andreessen decided to expand into a venture capital firm last year, after they had invested $4 million into 45 start-ups, among them Twitter, Qik, a live mobile video company, and Aliph, the maker of Jawbone headsets.