Fed probe of a16z cuts to core of venture capital
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"No conflict, no interest."
- The maxim is attributed to legendary venture capitalist John Doerr, who was seeking to accentuate the overlapping nature of startup investing.
- Now it might become fodder for the Justice Department.
Driving the news: DOJ reportedly is investigating Andreessen Horowitz for having partners sit on the boards of rival companies.
- It's specifically interested in the firm's directorates at Databricks (Ben Horowitz) and Fivetran (Martin Casado), which compete in some areas but partner in others.
The big picture: Such behavior theoretically could be a violation of Section 8 of the Clayton Act, an antitrust bill passed in 1914.
- In short, the rule prevents individuals from serving as directors on two competing companies.
- DOJ has interpreted the "interlocking directorates" rule to also include deputized representatives of the same entity, such as an investment firm. This was particularly true under President Biden, when DOJ investigations led to director resignations by private equity firms like Thoma Bravo.
Zoom in: VC firms had thus far been spared such investigations.
- One reason is that emerging tech competition is murky, whereas PE deals typically are in clearly defined sectors. Another is that Section 8 has de minimis exceptions for company size and revenue — and many VC-backed startups fall below them.
- Those exemptions, however, are falling by the wayside as AI startups raise billions and can be valued at trillions.
What they're saying: DOJ declined to confirm or deny the investigation, but a spokesperson did say: "We can affirm that the DOJ under the Trump Administration will continue to prioritize affordability for all Americans across our economy."
- Andreessen Horowitz didn't respond to a request for comment. Neither did Jonathan Kanter, the Biden-era DOJ antitrust chief who refocused the agency on interlocking directorates.
Behind the scenes: Andreessen Horowitz is one of the most connected firms in Trump's D.C. If it's being investigated for interlocking directorates, then it stands to reason that other shops are under similar scrutiny.
- Also worth noting that the firm originally didn't plan to take board seats at all, but later evolved its strategy. Also, one of John Doerr's best investments was Netscape, which Marc Andreessen cofounded.
The bottom line: Were DOJ to apply Section 8 to venture capital, the industry might respond by taking even fewer board seats than it already does. Which could create a whole different set of concerns.
