SAN FRANCISCO (Reuters) - Fifteen months after opening shop, venture capital firm Andreessen Horowitz has raised a new $650 million fund, more than doubling the size of its original fund and defying the broader pressure affecting the venture capital industry.
The fresh capital will allow the firm to place more bets on fast-growing Web start-ups and established technology firms alike, adding to earlier investments in a diverse group of companies that include social-gaming powerhouse Zynga, location services company Foursquare and Skype, the Internet voice and video call software company that recently filed to go public.
Marc Andreessen, the inventor of the Web browser who co-founded the venture capital firm with partner Ben Horowitz last year, told Reuters on Monday that the firm had worked its way through the initial $300 million fund sooner than the two to three years he had expected.
“I don’t expect it will be as fast,” he said of the second fund, noting that a $50 million investment in Skype contributed to the first fund’s shortened lifespan. A little more than half of the first fund’s money has been invested, with the rest reserved for follow-on investments in the 28 companies that Andreessen Horowitz invested in.
While it took Andreessen Horowitz three months to raise the initial $300 million fund, the firm raised the new fund in three weeks, from a group that included all of the initial investors and some new ones.
The quick pace comes at a time when many venture capital firms are struggling to raise money, in the wake of the financial crisis and with the venture industry delivering negative returns to investors when averaged over the past ten years.
“It’s a pretty tortuous road right now,” said Mark Heesen, president of the National Venture Capital Association, noting that some firms are taking as long as two years to raise funds compared to the more typical six-month to one-year period.
“You’re seeing some firms saying it’s just not worth going out at this point, and so delaying fundraising, and you’re seeing others just slog along for a longer period,” he said.
Fundraising among venture firms in the first three quarters of 2010 totaled roughly $9.1 billion, compared to $12.4 billion in the first three months of 2009, according to the National Venture Capital Association and Thomson Reuters. Venture capital firms raised $28.5 billion for the full year in 2008 and $35.4 billion in 2007.
Venture capital firms have also faced increased competition from the new generation of so-called angel investors and super angel investors, who invest smaller sums of money in start-ups at a very early stage in the company’s life.
Andreessen Horowitz’s second fund, like its first fund, will be “stage agnostic,” meaning it can invest in everything from tiny start-ups to larger companies, and even public companies.
About half of the investments in the first round were so-called seed investments, meaning the investments ranged from $50,000 to $500,000. But Andreessen said that seed valuations have surged by a factor of 4 to 5 times from what they were fifteen months ago.
“Seed investing is not as attractive as it was in the first round,” said Andreessen.
On the other hand, he noted that the opportunity to invest in growth-stage companies -- investments that typically range between $30 million to $100 million -- has expanded as some successful tech start-ups have opted to hold off on becoming public companies.
The firm invested in Zynga by buying shares from existing shareholders through the secondary market, a tactic that Andreessen said the firm would consider doing again with the right companies.
And while the firm’s Zynga investment gives it a stake in the No. 1 social gaming company, Horowitz said he believed there were more opportunities in social gaming that would not conflict with its Zynga investment.
“Social gaming, we think, is a bigger market than traditional gaming,” he said.
Reporting by Alexei Oreskovic; Editing by Gary Hill