New Investment Fund Focuses on Tech Start Ups
New Trend Emerges in Silicon Valley
The first quarter of 2009 marked the lowest level of investment since 1997, according to the National Venture Capital Associates. The Venture industry in particular has suffered as the number of IPOs and acquisitions has plummeted. In the Silicon Valley, where some of the recessionary fog is now lifting, investors and entrepreneurs have a chance to invest in the market and take advantage of the low valuations. With technology and software tools driving down the cost of starting a tech company by more than 100 times compared with a few decades ago, the potential for a new era of technology investment is emerging. Marc Andreessen, recognized by the venture capital community as an entrepreneurial visionary, has announced the formation of a new fund attempting to take advantage of this new trend.
Marc Andreesen – Industry Icon
Andreessen’s fund, Andreessen Horowitz, is co-founded with Ben Horowitz, an affiliate and partner from their former venture – Netscape. Andreessen moved to Silicon Valley and co-founded Netscape with entrepreneur Jim Clark, funded by blue-chip venture fund Kleiner Perkins. Almost instantly Netscape exploded into a business with enormous profit potential, with this 1995 IPO stock offered at $28 grew up to $75 by the close of trading. However, the glory of Netscape was short-lived, as Microsoft surfaced into the same competitive space and won the battle. Soon thereafter, the investment industry experienced the now-famous dot-com bust, which all but froze the technology industry. Andreessen continued to build his reputation in the Silicon Valley as a well-connected entrepreneur who served as an invaluable vessel of knowledge to other entrepreneurs (i.e. Mark Zuckerberg, CEO of Facebook) in terms of how to build and manage a strong technology company. Now, Andreessen has joined forces with his former colleague, Horowitz, to introduce a new fund that will focus its investment strategies on a diversified portfolio of emerging startups in technology sector.
The New Fund – Strategies and Setbacks
One reason the new fund has the industry buzzing is the sheer amount of financial backing it brings in a time where investor confidence is low. Through a few institutional investors and several key industry players, Andreessen Horowitz was able to pull in approximately $300 million in funds, which amounts to less than one third the size of the biggest boom-year venture funds and qualified Andreessen Horowitz to be regarded as the most prominent fund raised in 2009.
The Andreessen Horowitz investment strategy includes investing in 60-70 startups and having deal days meeting with at least 5-10 companies per day, offering the partners a constant vantage point to target and isolate industry shifts and evaluate what new innovations may be profitable. The fund’s strategy of investing in a myriad of startups does pose potential problems, such as truly tracking and backing the potential downfall of one or several of these many companies, and monitoring potential conflicts where the fund invests in two startup companies that eventually become direct competitors of one another (e.g. Facebook and Twitter). In response to how he plans to guard against such potential setbacks, Andreessen says that he will extensively research and disclose all potential conflicts and take measures to protect confidential information.
What this Means for the Investment Industry
As Andreessen attempts to restore investor confidence by capitalizing on the new rapid emergence of startup technology companies, the hope of generating large, ‘Netscape-esque’ returns sets a new optimistic tone for an otherwise risk-averse financial community. If successful, the new fund could potentially lift the cloud of doubt that looms over the investment industry by employing a strategy that both embraces cutting-edge innovation and provides even the smallest industry players the opportunity to have their ideas seen and heard by renowned industry veterans.