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Many venture industry observers have wondered whether Andreessen Horowitz, a firm that manages $45 billion, has its sights on eventually becoming a publicly traded company.
Co-founder Marc Andreessen said he isn’t “chomping at the bit to take the firm public,” on this week’s Invest Like the Best podcast. But he discussed his goal of building a16z into an enduring company, drawing inspiration from JP Morgan and publicly traded private equity firms.
Historically, venture capital firms have been partnerships consisting of a “small tribe of people sitting in a room together, trying to bounce ideas off of each other when they make investments,” Andreessen said on the podcast.
The problem with the partnership model, he said, is that it’s highly dependent on the ideas and expertise of those people at the table with “no underlying asset value,” as he described it. Once the original partners retire, the firm loses a lot of its value, even if a new generation of investors takes over.
“But even if they can keep it going, there’s no underlying asset value. That next generation is just going to have to hand it off to the third generation,” he said. “That’s probably going to fail on the third generation. It’s going to be on Wikipedia someday: that firm existed, and then it went away.”
The partnership model can be lucrative. A16z’s billions under management generates sizable money management fees for the firm, in addition to profits made when its investments succeed.
However, Andreessen said he constantly reminds internal staff and limited partners that the company isn’t raising money just to harvest the fees. It’s to give the company the cash to invest in growing companies.
“When we go for scale, it’s because we think it’s necessary to support the kinds of companies we want to help our founders build,” he said.
Andreessen says his bigger goal for a16z is to create a company that lasts. An alternative to a partnership is to build an investment company that’s managed like a business, which means it has management, multiple layers of staff, division of labor with specializations, and training programs, Andreessen said.
There are certainly precedents of small partnerships evolving into large corporations, which Andreessen can use as a model for a16z’s ambitions.
“Goldman Sachs and JP Morgan, 100 years ago, looked like little venture capital firms,” he said. “Then their leaders, over time, turned them into huge franchises and big public companies.”
He named other examples, too, of private partnerships turned into large publicly traded companies like big private equity firms. Blackstone, which now has a market capitalization of over $200 billion, went public in 2007. Apollo, KKR, and Carlyle held their IPOs soon after Blackstone, and TPG listed on Nasdaq in early 2022.
Andreessen argues that as these companies grew from partnerships into large corporations, their long-term success became less dependent on a few key investors.
“A big part of what we’ve been trying to do is build something that has that kind of enduring aspect to it,” he said.
In many ways, Andreessen Horowitz already looks more like an operating company than many VC firms. A16z has dozens of people in its marketing group and large teams that help portfolio companies recruit talent and sell their products. The firm runs separate crypto, bio and health, and American dynamism strategies.
But maybe there’s another reason Andreessen is keen to restructure away from the classic VC system. When it comes to partnerships, he says, “It actually turns out in most cases, what you discover is that people actually don’t like each other that much.”
