Andreessen Horowitz Launches $400M Seed Fund

Andreessen Horowitz Launches New $400 Million Seed Fund

Andreessen Horowitz is consistently announcing new investment funds, mirroring the frequency with which startups secure subsequent funding rounds. Following the launch of a $750 million biotech fund in February 2020, alongside $4.5 billion in new funds last November, and a $2.2 billion crypto fund more recently, the firm is introducing a new $400 million fund. This vehicle will specifically concentrate on providing capital to companies in their seed stage.

A Return to Early-Stage Investment

This development represents a noteworthy shift in the firm’s history. Previously, Andreessen Horowitz ceased making seed investments to preempt potential conflicts of interest, despite lacking a formal conflict policy for early-stage ventures. As Marc Andreessen articulated in 2013, the inherent uncertainty at the initial stages of company development often led to unfavorable outcomes, even when communicated to founders.

However, circumstances have evolved, and competitive pressures have increased. The firm eventually resumed investing in very young startups. Today, seed-stage investments are once again a significant component of their strategy. Since 2020, approximately half of the firm’s investments have been directed towards seed companies, according to a16z.

Optimizing Seed Deal Processes

General Partner Martin Casado explained that the new fund is primarily intended to streamline processes related to seed investments and ensure appropriate investor returns for the associated risks. The following is an excerpt from a recent conversation, slightly edited for brevity.

Conversation with Martin Casado

TC: You’ve stated that this seed fund doesn’t alter your investment approach, but rather formalizes existing deal structures. Will we see a substantial increase in seed-stage deals from Andreessen Horowitz?

MC: The entire industry has significantly accelerated its pace over the past three years. The number of seed funds has roughly doubled, and we’ve maintained alignment with industry trends. Seed investments from Andreessen Horowitz have increased considerably in response to these broader industry changes. Establishing a dedicated seed fund doesn’t necessarily imply a further acceleration of our investment pace.

Impact on Relationships with Seed Funds

TC: How will formalizing this new fund affect your collaborations with other seed-stage firms?

MC: We maintain close working relationships with seed funds and intend to continue doing so. The seed-stage environment has become increasingly competitive, with startups receiving term sheets from hedge funds, growth funds, and even angel investors. This represents an evolution of the industry rather than a fundamental shift.

Investment Team and Structure

TC: Who will be responsible for making these seed investments at a16z? Will there be a dedicated team managing the fund?

MC: We do not have investors specifically dedicated to this new capital. The same team of investors who handle Series A and Series B deals will also evaluate seed opportunities.

The Role of Scouts

TC: Andreessen Horowitz has utilized scouts in the past. Is this still the case, and if so, what percentage of your seed-stage deals originate from them?

MC: Yes, we continue to work with scouts, but they contribute to zero percent of our seed-stage deals. Their role is independent, allowing them to invest small amounts in deals of their choosing. However, these are not considered seed investments by our standards. For us, seed investments range from $1 million to $4 million, led by a firm investor with substantial ownership and involvement.

Scouts as Ecosystem Builders

TC: Are these scouts primarily founders and operators that Andreessen Horowitz aims to integrate into its network?

MC: The scout program serves two key purposes. It allows us to cultivate relationships with influential individuals, both current and aspiring entrepreneurs. It also provides access to emerging deal flow, enabling us to assess current activity and leverage their insights.

Defining a Seed Investment

TC: You mentioned check sizes of $1 million to $4 million. How does a16z define a seed investment?

MC: Typically, for us, a seed investment is around $6 million – though these are not strict rules – and we generally do not take board seats at this stage.

Ownership and Market Dynamics

TC: What level of ownership do you aim for with that initial check?

MC: We don’t have a fixed target for ownership. It depends entirely on market conditions, and we adapt to those dynamics.

Collaboration with Other Funds

TC: Given the competitive landscape, do you prefer to invest independently or collaborate with syndicates or other investors?

MC: I personally enjoy working with other seed funds. We have no internal rules or biases regarding this. Different GPs have different perspectives. I value collaboration because there are excellent seed funds with whom we can share or co-lead deals.

Investment Criteria and Due Diligence

TC: How early is too early for the firm to invest?

MC: If we possess deep expertise in a particular space, having thoroughly researched it and having a deal partner with specialized knowledge, we can invest in a founder with just an idea, believing we understand the market. We’ve even invested in solo founders before their company was formally established.

If our understanding of the space is limited, we prefer to see some level of maturity in the company, such as early customer traction, product development, or a working demo. This allows us to better assess the market potential. Therefore, the maturity of the company is inversely proportional to our existing knowledge.

Decision-Making Process

TC: Can you describe the decision-making process? Is it different for a $6 million check compared to larger investments?

MC: The level of scrutiny and effort we dedicate to seed investments is generally less than for Series A rounds. Fewer people are involved, and since we don’t typically take a board seat, the firm’s time commitment is reduced. It’s a more streamlined process. We usually have at least two GPs review the opportunity, whereas Series A and larger deals involve the entire vertical team, and ultimately, the entire fund.

Successful Seed Investments

TC: What are some of the firm’s most successful seed investments?

MC: We’ve had several notable successes. Slack received our first funding. Databricks was also an early investment. We also participated in a seed round for Coinbase.

Pictured above: Casado at a TechCrunch Disrupt event in 2019.