Andreessen Horowitz has a new $200mm Co-Investment Fund

This is a guest post by John O'Farrell, General Partner at Andreessen Horowitz

Today, we are delighted to announce the creation of a co-investment fund for our Fund II. Andreessen Horowitz now has $1.2 billion under management. We’re fortunate to be working with the best growth companies building the next global franchises—and we have the firepower to meet their needs, no matter how big a check they’re looking for. We’re seeing an amazing crop of high-quality companies graduate to the growth stage, and this fund lets us work with the very best of them.

The backdrop

When we announced our $650 million second fund in November, Ben wrote a blog post that summarized our philosophy as a firm:

    • We want to be in business with the best entrepreneurs going after the biggest markets—at whatever stage they need funding.
    • A single fund investing flexibly across seed, venture and growth stages—rather than say, a separate growth fund—is best for our companies and our investors:

        • It allows us to leverage the operating experience of our general partners and our other unique firm functions across all of our portfolio companies. (For example, I’ve driven many of our growth investments, but also work with several seed and venture-stage companies.)

        • It aligns us totally with our investors. With a single fund, we only make money if the whole fund makes money.

        • We don’t want a fund so large that its size dictates the investment pace—we have seen other firms, perhaps attracted by fat management fees, raise so much money that they lower their quality bar in order to “put the money to work.”

The strategy is working superbly. We’ve invested amounts ranging from $50,000 to $100 million in over 30 great companies, across mobile, gaming, social, ecommerce, education and enterprise IT (such as cloud, security, and SaaS). While we’re excited about all of them, I’m particularly proud of our investments in eight outstanding growth stage companies (I’m biased—growth is one of my areas of focus), from global giants like Facebook and Groupon to emerging global franchises like Jawbone, Box.net and fusion-io. We’ve also added two more hugely talented and experienced partners, Scott Weiss and Peter Levine, giving us more capacity for the large number of entrepreneurs at every stage who want to work with Andreessen Horowitz.

So, why expand our growth-stage funding capacity, and how does it fit with the philosophy articulated above?

Why did you create a co-investment fund?

This is a very exciting time. We’re continuing to find really impressive growth companies that need additional capital to reach their full potential. In most cases, they find us. Access to the best companies is a key determinant of success in the venture business, and we’re fortunate to have access to the cream of the crop—companies that are leveraging the global Internet to build enormously valuable enduring franchises, out of the glare of the public markets. Some are already well-known names, and others have the opportunity to be the household names of tomorrow.

These companies have a substantial need for capital–they’re hiring aggressively, expanding internationally, making acquisitions, investing in facilities, pouring money into marketing—all to double down on their success and win the entire market. Often, they want to meet their needs with one new investor. The size of their market opportunity allows for very attractive returns for the investor they choose to work with.

Even though they’re past the venture stage, these companies need more than just money. The Andreessen Horowitz model of experienced operating partners and high-value firm functions resonates with them, and they want a deep relationship with us. Being able to write a check for whatever amount is required allows us to fully meet their needs. That in turn advantages the firm and our investors.

Speaking of our investors, many of our limited partners have asked us for more exposure to these high-quality growth companies.

So, creating this co-investment fund allows us to further our strategy and fully meet the needs of our customers, namely our companies and our limited partners.

How does the co-investment fund fit with the firm’s philosophy?

The co-investment fund is a perfect fit with our philosophy:

It will be invested alongside our Fund II, enabling us to write larger checks for the best growth opportunities whenever necessary. We will only invest it in companies that part of our main funds.

It allows us to meet the expanding needs of the best growth companies without cutting back one iota on our very active seed and venture-stage investing activity.

It’s not a separate growth fund, meaning there’s no pressure to invest it. If we continue to see great growth opportunities, we’ll invest. If we don’t, we won’t!

It maintains full alignment with our investors: We will charge no management fee on the additional funds—neither on committed nor invested capital. In other words, we will only make money if our investors make money.

It allows us to keep our quality bar high, because we have no financial incentive to invest unless we are convinced of the returns our investors expect from us. That’s the way it should be.

All that may be why the co-investment fund was significantly over-subscribed.

Looking forward

Building on Fund II allows us to meet the needs of the best growth companies even better than before. We’re already finding opportunities to put it to work. If your company is on its way to building a lasting, valuable franchise with global potential, we want to work with you!

Andreessen Horowitz has a new $200mm Co-Investment Fund
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