Andreessen Horowitz has always had seed investing as a core part of its strategy, going back to big wins like its $250,000 check into Instagram. But going forward, a16z partners will have a new and much bigger $400 million fund to do it from. On Friday, the firm is announcing a standalone seed fund that's meant to give LPs new investing avenues and marshal dedicated resources for seed-stage companies.
"We're very good at hiring VPs of products and VPs of sales, but our focus hasn't been as much on, 'Here are the first 10 hires,'" said a16z general partner Martin Casado.
When it comes to investing, Casado stressed that nothing is changing on the strategy. There's no new partners or seed specialists, and the size of the fund is what they'd been allocating for seed investing anyways.
What does change is that the firm plans to focus more on seed-specific resources that start from the earliest days of company formation, when founders wrestle with hiring their first product manager or figuring out a marketing plan.
It also is a new product for its LPs, who can tune their risk tolerance across a16z's seed fund, main fund, growth fund and specialty funds like crypto and bio.
Venture firms have tried dedicated seed funds before, but not all of them have worked out. Kleiner Perkins launched a $4 million seed fund in 2015, orders of magnitude smaller than a16z's $400 million effort, before winding it down two years later after the dedicated partners on it left the firm.
The challenge with having a seed fund can be signaling risk. If a16z invests in a company at the seed, but doesn't do the next round of funding, other investors might interpret that as a negative sign. Casado says it cuts both ways: More often than not, his seed investments are getting preempted by other firms who want to lead the follow-on rounds, he said.
As nontraditional investors take more of a share of the later-stage market, the earlier stages of investing have become more crucial to traditional VCs' strategies. Andreessen said that of the investments it has made since the start of 2020, about half have been in seed-stage companies.
Now it has to come up with ways to support them. With more than 240 people working at the firm, Andreessen Horowitz has always marketed its extra services, from recruiting to growth strategies, as part of its perks for entrepreneurs. Having dedicated operations for the earliest-stage companies as a result of the new fund will only sweeten the pot and attract more founders.
"Having been in that situation myself, I can appreciate how important the founding time is and having a dedicated team on the operating side of that. I think it's a beautiful thing," Casado said. Casado co-founded Nicira Networks, one of Andreessen's most successful early-stage deals.
