Andreessen Horowitz is not alone in leaving behind VC as we know it – and more companies are waiting for us – TechCrunch

This morning, Forbes wrote a long profile of Andreessen Horowitz, a 10-year-old investment firm that his rivals love to hate but still have a tendency to copy. This is an excellent reading of some of the company's successes and losses and, interestingly, of regrets, including the early predisposition of the founders to talk hard about the rest of the venture capital industry.

As Ben Horowitz told journalist Alex Konrad: "I regret it a little because I feel that I hurt the feelings of people who were excellent companies. . . I went too far. "

The story also suggests that Andreessen Horowitz – whose agency-style model has been widely replicated by other major venture capitalists – is now reshaping venture capital a second time. That's what Forbes says, becoming a registered investment advisor.

But the business is not the only one to turn into something very different from what it was, including an AIR. SoftBank is already one. General Catalyst seems to be registering as such as well. (She recently removed her status from the so-called exempt tax adviser.) Other large companies offering a range of non-VC type products are also considering the same move.

They do not have much choice. Capitalization companies have traditionally been able to penetrate new areas through partnership agreements with their own investors, but they have also been confronted with the ceiling traditionally limited to 20% of these activities, such as buying on public markets, investing in other funds, issuing debt to fund redemptions, and acquiring equity through secondary transactions.

In other words, 20% of their capital could be used to experiment, but the rest had to be channeled into typical venture-type transactions.

For Andreessen Horowitz, this cap has clearly begun to creak. An early and persistent supporter of technologies, markets and applications, the company has been particularly frustrated by its inability to invest more of its flagship fund in encrypted startups. Last year, it created a separate cryptography fund to be able to act more aggressively on opportunities, but according to Forbes, the constraints related to the creation of this separate legal entity led to further aggravations.

By becoming a registered investment advisor, Andreessen Horowitz will no longer have to limit his holdings, including in his general fund – the latest being announced soon. He will also be free to invest any percentage of his fund in large, high-growth companies, buy shares of his founders and early investors, and negotiate public stocks, as Forbes notes.

This is the same reason why SoftBank is a registered investment advisor and other large companies with more badets will still be. As Barry Kramer, a long-time lawyer, points out, "As the now gigantic operating companies that VCs financed, like Google, Apple and Amazon – each playing in separate and overlapping market segments – hedge funds mutual funds, secondary funds, and venture capital funds that previously operated in distinct market segments also start to overlap. "

In fact, the ability to shop only for secondary holdings could lead a company to restructure. "Secondary markets eat" public markets, says Barrett Cohn about the investment bank Scenic Advisement, which helps to negotiate sales between buyers and sellers of shares. Cohn is very interested in this turning point, but it is also difficult to say that he is mistaken, given the time during which startups remain private and how many secondary activities now take place before they are acquired, become public or lost. .

Not surprisingly, the powerful venture capital lobby – the National Venture Capital Association – has tried to convince the SEC to change its definition of what constitutes a venture capital firm. He recognizes that he will lose more and more members if the venture capital companies do not give them more flexibility.

At the moment, becoming an AIR is not without drawbacks – many of them, notes Bob Raynard, managing director of the Standish Management Fund Administration Services Company in San Francisco.

Although he thinks that a lot of companies like Andreessen Horowitz may not have a choice at some point in time ("I think there are many other companies investing in growth capital and risk capital that should be registered for themselves "). adapting can be "quite expensive", starting with a total lack of privacy and expense.

An estimate we found suggests that median annual compliance costs are eight times higher for RIAs than for exempt registered advisors.

"Yes [Andreessen Horowitz] becomes an AIR, its cost structure has just escalated, "says Raynard, noting that a compliance officer will have to approve everything an employee of the company does, as well as the investment decisions made by spouses, children, children of his partners. and even parents do. "As a VC, you do not have to declare your transactions," notes Raynard, but an AIR must ensure that nothing or anyone with a pecuniary interest in the company creates a costly misstep.

One could also imagine that this creates headaches for limited partners, who generally like to invest in separate badet clbades, be it venture capital, private equity or hedge funds. If Andreessen Horowitz, among other companies, begins to look like a fusion of the three, how are they perceived? In which bucket did we land?

The company refused to answer this and other questions today, claiming that it focused for the time being on completing the registration process as an AIR, but Raynard rejects the idea that its new look could scare the institutions that have funded it for a long time. "I think the regulators will see it as a good thing, and I think most of the limited partnerships would see it as a positive change because of the increased third party oversight."

He thinks that beyond the loss of confidentiality and spending and scrupulous observation of the SEC, a bigger trade-off as venture capital companies become, well, the companies of Investment at large, could be that it becomes harder to recruit.

"If you are a subordinate and you are recruited by a company that is a registered investment adviser versus a venture capital firm where your transactions are not scrutinized and you have some confidentiality," says Raynard, "It's something you're doing." I'll think about it.