Netscape's Andreessen and Horowitz form VC fund

SAN FRANCISCO Mon Jul 6, 2009 12:58am EDT

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SAN FRANCISCO (Reuters) - Well-known Internet entrepreneurs Mark Andreessen and Ben Horowitz have raised $300 million for a new venture capital fund, declaring they plan to avoid the danger of forcing start-up companies to make money too soon.

Shunning a quick investment return may sound counterintuitive at a time when other venture capitalists are scratching for cash or being forced to shut down, but Andreessen and Horowitz beg to differ.

They point to dozens of start-ups they had a hand in -- but more important for fundraising may be Andreessen's fame as founder of the world's first Web browser company, Netscape. Horowitz was an executive there as well.

Andreessen-Horowitz -- dubbed "A to Z" -- has only two general partners, an unusually high cash-to-investor ratio.

"We have designed our charter so we can invest in a range anywhere from $50,000 to $50 million," Andreessen said. "We can invest in early stages, we can invest in classic venture rounds where you might invest $5 million or $8 million, we can also do late stage. It's what we call full spectrum," he said.

Venture capital is a long-haul journey, with investments often lasting seven years or more before a company can make money. The $300 million is designed for a 10-year run, and Andreessen said that it could stretch out even longer for some companies.

Silicon Valley and the West Coast are full of successful companies, from Intel Corp (INTC.O) to Cisco Systems Inc (CSCO.O) and Google Inc (GOOG.O), but they are tough to pick.

The venture capital industry crashed in 2001 when the dot-com bubble burst and has never recovered to the levels of the late 1990s. With fewer initial public offerings, the industry has languished except for a few successful firms.

Andreessen said he would not be surprised if more than half of the 700-plus venture capital funds in Silicon Valley eventually close up shop, which he said would be good for the industry.

"That's what should happen. It's not just that there are 400 extra venture funds. It's that they are funding 4,000 extra companies, none of which will ever amount to something," he said. "Maybe half those firms won't be able to raise funds in the next 10 years."

Andreessen said about 15 companies a year founded in Silicon Valley will go on to have revenue of $100 million annually. He wants to figure out early which those are.

"They generate all the venture returns. Those are the companies that matter. If you do not get into those companies, you fail," he said.

Andreessen cited as a success one of the companies that he and Horowitz invested in two years ago, Aliph, maker of the popular bluetooth headset Jawbone. "They're doing more than $100 million in revenue," he said.

Horowitz and Andreessen envision making as many as 60 to 80 investments at the low end of the spectrum, and spending the majority of their cash on 10 to 15 companies.

Most of their investments will be in Silicon Valley and make use of their expertise in computers and the Internet, including cloud computing, network storage, servers and databases.

Before forming their new firm, Horowitz and Andreessen invested in 41 companies, either singly or together. They include social media companies like Twitter, Digg and Linked-In, and Rightscale -- which helps companies use the Internet cloud.

(Reporting by David Lawsky and Anupreeta Das, editing by Tiffany Wu, Richard Chang and Matthew Lewis)

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