Could the DOJ’s Investigation of a16z Intimidate Other Venture Capitalists?

A Bloomberg report reveals that the Department of Justice is probing the venture capital firm Andreessen Horowitz for holding board roles within competing AI firms, causing confusion among venture capitalists, as noted by TechCrunch.

During the latest episode of the Equity podcast, hosts Kirsten Korosec, Sean O’Kane, and I shared our bewilderment regarding this news. While the issue of VC conflicts of interest is important, as Kirsten pointed out, “Of all the matters the DOJ could prioritize, why is this one at the forefront?”

This revelation was particularly surprising given a16z’s ties to the Trump administration and the firm’s notably low-key response to the investigation. This contrasts sharply with the Biden era when, as Sean remarked, “even slight policy changes, particularly related to crypto, prompted extensive discussion.”

Sean further proposed that by investigating a16z, the DOJ may be signaling to other smaller firms to take heed.

Continue reading for an edited excerpt of our conversation, refined for clarity and conciseness.

Kirsten Korosec: Your perspectives here are particularly insightful, Anthony, given your experience at a VC firm, unlike Sean and me, who have primarily covered the industry.

Anthony Ha: Regular listeners of Equity know that I spent some time at an early-stage VC firm, which is significantly smaller compared to Andreessen Horowitz, yet still part of the larger ecosystem.

Reading the article on Andreessen Horowitz’s board memberships, especially in relation to competitors, significantly influenced my viewpoint.

I was genuinely surprised, much like many other VCs appeared to be. While I’m not a legal expert and wasn’t involved in the legal aspects of my previous firm, it’s evident that there are established norms—and reportedly laws—regarding board positions in competing startups, which aren’t often rigorously enforced.

Generally, founders aren’t thrilled about having a representative from their primary competitor on their board. However, startups frequently pivot. An investment in one firm might suddenly face competition from another as industries change—such as with the recent AI boom. This makes the DOJ’s year-long investigation puzzling, especially considering the broader implications it may carry.

Kirsten: In this case, we notice Ben Horowitz on the Databricks board and Martin Casado on the Fivetran board. To your point, during this AI boom, many companies are changing their focus to connect with the AI sector or specific niches. Given a16z’s vast portfolio and multitude of board roles, it’s easy to see how these conflicts could emerge.

What intrigues me—Sean, what are your thoughts—is why this issue has captured the DOJ’s attention over other pressing matters?

Sean O’Kane: I’m eager to see if there are potential disruptions. How about we start a venture that incorporates AI on boards with no conflicts of interest? Let’s make it happen.

Indeed, this situation is unusual for several reasons, and when I first saw the headline, I was curious about the specifics of the investigation.

Let’s take a step back. Bloomberg reported that the investigation has been in progress for nearly a year, initially commencing during the Trump administration. Andreessen Horowitz’s leaders have strong connections to Trump and held various roles within his administration.

Despite the previous administration’s apparent focus on antitrust issues, concrete action has been limited. They reached a settlement with Live Nation without addressing the Ticketmaster situation—a clear sign of unmet expectations.

The Justice Department should function independently, without being utilized as a political instrument. However, it’s intriguing to observe their pursuit of this matter while being closely tied to the current administration.

I’ve reported on instances involving Andreessen Horowitz that raised my eyebrows. Two years ago, we covered Ben Horowitz facilitating connections between his backed startups and the Las Vegas police, which seemed to hold a more questionable competitive nature compared to the current investigation, which appears somewhat coincidental considering business dynamics.

Unlike their vocal response during the Biden administration regarding minor policy changes, particularly in crypto, there’s been a marked silence from Andreessen Horowitz now—raising questions about whether they’re following legal advice or if something more significant is at play.

Anthony: On the DOJ’s side, without getting into the political chaos, there’s evident uncertainty about the department’s politicization. This makes it all the more surprising to find such an extensive investigation involving a suspected ally of the Trump administration.

One last point: the length of this investigation is indeed astonishing. If it were just about a few board positions, a brief response would seem appropriate. This implies that more must be going on, leading to serious inquiries. Otherwise, why prolong this process?

Kirsten: I believe two potential truths can coexist. There could be a sluggish investigative process on the DOJ’s part while also uncovering a significant issue. While it’s imprudent to speculate too much, their hesitance might suggest they’re responding to legal counsel, hinting at deeper concerns.

I wonder: how will this affect other VC firms? Are they paying attention, or do they perceive this as an isolated incident and continue with business as usual, securing board roles without any concerns regarding competitive conflicts?

Sean: That’s a relevant question. If this matter has genuinely engaged the antitrust division, the DOJ might be aiming to make an example out of Andreessen Horowitz rather than immediately going after all smaller competing firms. Such an approach could induce more caution among these smaller players.

Additionally, it’s noteworthy that the current administration has largely refrained from pursuing actions against public companies. Both the SEC and the DOJ have emphasized prioritizing individual accountability over corporate prosecutions.

While we’re discussing Andreessen Horowitz as a corporate entity, this shift in priorities could be influencing the current investigation—if the focus isn’t on major corporations, the DOJ may pay more attention to cases like this.