Which headhunters does Andreessen Horowitz use
Why Andreessen Horowitz no longer wants to be a VC fund
The Forbes article caused a stir; numerous other related reports followed. This is due to his core message: Andreessen Horowitz wants to abandon his status as a VC fund and register as a so-called Registered Investment Advisor (RIA). Andreessen Horowitz is also about to close a new $ 2 billion fund.
Registering as an RIA is a rather tedious step that involves a review of all 150 employees. In the future, the SEC will keep a closer eye on Andreessen Horowitz's investment activities. So far, American VC funds have avoided registering as an RIA. The legal framework allows this, but also restricts it: In the case of American VC funds, 80% of the investments must be made in newly issued holdings in unlisted companies.
The complete portfolio of Andreessen Horowitz (e.g. in Facebook, Airbnb, Lyft) reads like a who-is-who of the digitalUnicorns In recent years, why is one of the most successful VC funds now changing its business model?
This question is important insofar as it would not be the first time that Andreessen Horowitz has changed the VC industry with a new business model. Before the current announcement of registering as an RIA, Andreessen Horowitz initiated another trend: A large part of his 2% management fee is spent on a team of marketing, business development, financing and recruiting experts who run the portfolio startups support. This operational support was a unique selling point at the beginning, but has now become an important value proposition for many VCs in order to get access to the best deals and limited partners.
We have dealt with the question of why Andreessen Horowitz is giving up VC status, and formulated three further theses on this from the perspective of companies that position themselves as strategic investors in the VC market (strategic CVCs for short).
The most convincing explanation for Andreessen Horowitz ‘laborious registration as RIA has to do with the size of the new fund. The existing restrictions as a VC fund make an efficient allocation of the fund capital difficult: to invest 80% of the 2 billion US $ in primary shares of startups would require Andreessen Horowitz to have a very large number of them and small in relation to the fund size Have to write tickets. As an RIA, on the other hand, Andreessen Horowitz, similar to the Foundry Group or SoftBank with the huge Vision Fund, can invest unlimitedly in secondary shares, crypto currencies, tokens or even listed stocks. This creates new and advantageous possibilities for the optimal allocation of the fund capital (even if this does not necessarily mean that large parts of the fund end up in cryptocurrencies, which some Kypto enthusiasts would like).
Will Andreessen Horowitz shake up the VC landscape again with this step towards an RIA? We tend not to believe; at least not in the sense that RIA status will become a future condition for successful VC activities. But the move is a strong indication that more and more new models are emerging on the market with different vehicles, value propositions, investment activities, also and especially with regard to asset classes. There is no longer one VC (or CVC) archetype along which one could simply define a blueprint for a functioning business model. The VC landscape is becoming more complex and confusing, but it also offers more opportunities for successful differentiation. The following three further theses should also be understood in this context.
Thesis # 1: The development of VC funds towards RIAs is not automatic, but the allocation of capital to new asset classes will generate new vehicles.
The move to an RIA probably only makes sense with a certain fund size. In the case of smaller funds, the management bandwidth will also be sufficient in the future to distribute the fund volume profitably across comparatively small tickets for newly issued shares. In addition, the distinction between the permitted activities of VC funds and RIAs is an American discussion. The regulatory framework in Germany and Europe looks different. VC funds have different prerequisites for investing their capital in other asset classes. What happens in the USA due to the regulations there is therefore not directly applicable to the VC landscape in Europe or elsewhere.
It is correct, however, that there are of course restrictions on investment mandates, for example with crypto investments or with regard to holding periods. In the medium term, VC players will therefore consider whether new vehicles that are better suited for certain investment activities will not be needed. This dynamic will increase further when the market for trading investments in unlisted companies becomes more liquid, as can be the case, for example, with equity tokens or through newly emerging matchmaking platforms for providers and buyers of (secondary) shares.
Thesis # 2: The competition, especially for late-stage startup investments, is increasing.
The announcement to register as an RIA in connection with the closing of the US $ 2 billion fund leaves little doubt that Andreessen Horowitz will be more involved in late-stage venture investments. Here in particular, it can be a great advantage to participate in ventures via secondary shares. However, the orientation towards late-phase investments is not a trend that should be ascribed to Andreessen Horowitz as a representative of the VC landscape. Private equity funds and family offices are also increasingly crowding into this investment space. This increases the competition for growth equity deals, which CVCs will also feel: where a few years ago they might have been able to offer the best deal conditions, they are increasingly competing with a number of other types of investors.
CVCs can encounter this additional competition at a sensitive point. After all, late-stage venture investments are particularly exciting if you want to realize strategic returns quickly. Axel Springer's investment strategy was designed precisely for this - and has made a significant contribution to the successful digital transformation of the media company. Last year, Allianz changed its strategy for its CVC vehicle Allianz X in favor of Later Stage Investments. It will be interesting to see how CVCs can strengthen their position in the late-stage investment market in the future.
Thesis # 3: Investors need to define their own value proposition more clearly and - more importantly - successfully operationalize it.
The Forbes article about Andreessen Horowitz also tells of an episode in which the VC Fund tries to invest in a biotech startup. Biotech has not been in the investment focus for a long time and Andreessen Horowitz is making every effort to show the startup how much biotech expertise and networks have been built up in the recent past.
Not only Andreessen Horowitz will have to ask (or be asked) this question about the value proposition and its concrete fulfillment in the future. It applies equally to all investors. Only those who, depending on the chosen vehicle and investment focus, really create added value and not just claim to be able to differentiate themselves successfully on the market.
Strategic CVCs have to find a way to define their value proposition even more clearly and then to operationalize it. Axel Springer has done this, for example, by setting up a large number of portfolio services such as pricing advice or knowledge sharing formats that the entire venture portfolio can access. Another way is to generate added value through business-centered partnerships. The venture client model such as BMW's startup garage is just one variant of a spectrum of possible partnering activities that are becoming increasingly professional. If cleverly managed, these can be well dovetailed with investments and thus deliver tangible added value that is beyond the possibilities of a pure VC fund. Strategic CVCs in particular have one through their industrial and technological competence, their sales strength or their dataUnfair Advantagethat makes them attractive as an investor for many startups. This card has to be played cleverly.
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