Many venture industry observers are wondering whether Andreessen Horowitz, the company that manages $45 billion, is looking to become a publicly traded company.
Co-founder Marc Andreessen said, “I'm not munching a bit to get the company out of it,” like this week's Invest Yesterday Yount The Best Podcast. However, he discussed his goal of building an A16Z with a permanent company, inspired by JP Morgan and a public private equity company.
Historically, venture capital companies have been a partnership consisting of “a small tribe of people sitting in a room together, trying to bounce ideas off each other when they invest.”
The problem with the partnership model, he said, is that, as he explained, “no fundamental asset value” and heavily relies on the ideas and expertise of the people at the table. When the former partner leaves, the company loses much of its value, even if a new generation of investors take over.
“But even if they can continue doing that, there is no fundamental asset value. That next generation just has to hand it over to the third generation,” he said. “It's probably going to fail in the third generation. I'm going to go to Wikipedia one day. The company existed and then disappeared.”
The partnership model is advantageous. With billions of A16Z managing management teams, it generates substantial cash management fees for the company in addition to the profits made when the investment is successful.
But Andreessen said he is constantly reminding his internal staff and limited partners that he doesn't raise funds just to harvest fees. It's about giving the company cash to invest in growing companies.
“When we go for scale, that's because we think we need to support the kind of companies we want to help build founders,” he said.
Andreessen says that the bigger goal for the A16Z is to create a company that lasts. An alternative to partnerships is to build an investment company that is managed like a business. That is, there are management, multiple staff tiers, division of labor in specialties, and training programs.
Certainly there is a precedent for small partnerships that will evolve into a large company that Andreessen can use as a model for A16Z's ambitions.
“A hundred years ago, Goldman Sachs and JP Morgan looked like small venture capital companies,” he said. “Then their leaders have transformed them into huge franchises and large public companies over time.”
He also transformed other examples of private partnerships into large public companies, such as large private equity companies. Blackstone, which currently has a market capitalization of over $200 billion, was released in 2007. Apollo, KKR and Carlisle immediately held Blackstone's IPO, and in early 2022 TPG was listed on the NASDAQ.
Andreessen argues that as these companies grow from partnerships to large companies, their long-term success will no longer depend on a small number of key investors.
“The majority of what we've been trying to do is building something that has that lasting aspect,” he said.
In many ways, Andreessen Horowitz already looks more like an operating company than many VC companies. The A16Z has dozens of people in a large team that helps marketing groups and portfolio companies recruit talent and sell their products. The company operates separate crypto, bio and health, and American dynamism strategies.
However, there may be another reason why Andreessen is eager to rebuild from the classic VC system. When it comes to partnerships, he says, “Most of the time, what you've discovered is that people don't really like that much.”