The rush to cash in on the next wave of high-growth internet start-ups has enabled Andreessen Horowitz, a venture capital firm with ties to Facebook, to raise $1.5bn in one of Silicon Valley’s biggest recent fund-raisings.
Coming in the wake of a sharp fall in the overall amount of money going into venture capital, the development highlights a growing concentration that has left a handful of big firms with even greater sway over the fortunes of US technology start-ups.
The new fund, announced on Tuesday, brings to $2.7bn the amount that Andreessen Horowitz has raised since it was set up just two and a half years ago. That has helped it make a rare breakthrough into the close-knit ranks of Silicon Valley financiers, which are still dominated by firms that can count companies like Apple and Amazon among their trophy clients.
Set up by Marc Andreessen, who made his name as a 22-year-old when he helped found browser company Netscape in 1993, and long-time business partner Ben Horowitz, the firm first made its name with a big pay-day from backing Skype’s 2009 buy-out.
It has also become a big investor in the latest crop of fast-growing internet companies, including Facebook, where Mr Andreessen is a board member. Facebook is gearing up to file registration papers with the Securities and Exchange Commission on Wednesday that will set in train its widely expected initial public offering, a person familiar with its thinking indicated.
A four-fold profit in only a year and a half from its backing of Skype, along with early wins from IPOs like those of social games company Zynga and storage concern Fusion-io, have already left it with early returns that are among the highest in its industry, Mr Horowitz said.
A collapse in the amount of money flowing into the venture capital business since the financial crisis has led to a reduction in the number of firms backing start ups and left a handful with strong track records in the driving seat. The total amount raised in 2011 dropped to $18.2bn from $31.1bn three years before, according to the National Venture Capital Association.
The new class of giant fund has raised the spectre of declining returns in an industry that made its name from generating large returns from making small, early stage investments. However, Mr Horowitz said that even if returns from large funds turn out to be lower, investors are still better off than if they had been restricted in how much money they could put to work in a smaller fund, Mr Horowitz said.
“What’s important is that you’re better for [investors] than other things they invest their money in,” he added.