Will the DOJ’s Investigation of a16z Deter Other Venture Capitalists?

According to a Bloomberg report, the Department of Justice is probing the venture capital firm Andreessen Horowitz due to its involvement with rival AI companies, raising concerns among venture capitalists, as reported by TechCrunch.

In a recent episode of the Equity podcast, hosts Kirsten Korosec, Sean O’Kane, and I shared our astonishment regarding this development. Kirsten raised an important question: while conflicts of interest are a critical concern among VCs, “Of all the issues the DOJ could prioritize, why this one?”

The news took many by surprise, especially considering a16z’s connections to the Trump administration and their relatively subdued reaction to the investigation. This is in stark contrast to the Biden administration, where, as Sean pointed out, “even minor shifts in policy, especially regarding crypto, led to extensive discussions.”

Sean noted that this inquiry could act as a cautionary tale for smaller firms in the venture capital space.

Continue reading for a refined excerpt from our conversation, edited for clarity and brevity.

Kirsten Korosec: Anthony, your insights are particularly valuable here, given your background at a VC firm, which differs from Sean and me, who primarily report on the industry.

Anthony Ha: Loyal listeners of Equity are aware that I spent some time at an early-stage VC firm, which, while smaller than Andreessen Horowitz, is still part of the broader landscape.

My understanding of Andreessen Horowitz’s board roles, especially concerning their rivals, has significantly influenced my perspective.

I was genuinely surprised, reflecting the astonishment felt by many other VCs. Although I’m not a legal expert and wasn’t involved in legal affairs at my previous firm, it’s evident that there are norms—and reportedly laws—surrounding board memberships in competing startups, which aren’t always enforced.

Typically, founders do not want representatives from their main competitors on their boards. Yet, with many startups frequently pivoting, an investment in one company could suddenly mean competition with another, especially in the rapidly evolving AI landscape. This context makes the DOJ’s year-long investigation puzzling, particularly regarding its broader implications.

Kirsten: In this instance, we see Ben Horowitz on the Databricks board and Martin Casado on the Fivetran board. To your earlier point, during this AI boom, many companies are pivoting to explore AI or specific niches. Given a16z’s extensive portfolio and various board roles, it’s clear how these conflicts could potentially arise.

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

Sean O’Kane: I’m interested to see if this results in any significant changes. What if we established a venture that included AI on boards without conflicts of interest? We should aim to make that happen.

Indeed, this scenario is unconventional for a variety of reasons, and I found myself questioning the details when I first read the headline.

Let’s take a step back. Bloomberg reported that this investigation has been ongoing for nearly a year, initiated during the Trump administration. Executives at Andreessen Horowitz have built connections to Trump and held diverse roles in his administration.

Despite the previous administration’s focus on antitrust matters, substantial action has been uncommon. They reached a settlement with Live Nation without addressing the Ticketmaster issue, highlighting untouched expectations.

The Justice Department should operate independently and not serve as a political tool. Nonetheless, it’s interesting to observe their focus on this matter while being closely aligned with the current administration.

I have encountered situations involving Andreessen Horowitz that caught my attention. Two years ago, we reported on Ben Horowitz facilitating connections between his portfolio startups and the Las Vegas police, which seemed far more dubious than the current investigation, seemingly stemming from business dynamics.

Unlike their vocal responses during the Biden administration concerning minor policy changes, particularly in crypto, Andreessen Horowitz has remained notably quiet in this situation—raising questions about whether they are responding to legal advice or if something more serious is occurring.

Anthony: From the DOJ’s perspective, avoiding political controversies raises clear questions regarding the department’s objectivity. This highlights the surprise surrounding the revelation of such a significant investigation involving a presumed ally of the Trump administration.

One final thought: the length of this investigation is quite striking. If it solely revolved around a few board positions, a quick resolution would seem reasonable. This implies that more significant issues might be at play, leading to serious inquiries. Otherwise, what justifies the extended timeline?

Kirsten: I believe two potential scenarios could be happening simultaneously. The DOJ may be experiencing a slow investigative process while uncovering a major issue. While it’s unwise to excessively speculate, their careful approach might suggest they’re following legal counsel, which could imply deeper concerns.

I’m curious: how will this impact other VC firms? Are they monitoring the situation, or do they consider this an isolated incident and continue securing board positions without regard for competitive conflict?

Sean: That’s a crucial question. If this situation has engaged the antitrust division, the DOJ may aim to set a precedent with Andreessen Horowitz rather than directly targeting smaller rival firms. This could lead to increased caution among those smaller entities.

Also, it’s important to note that the current administration has largely refrained from taking action against public companies. Both the SEC and the DOJ have emphasized individual accountability instead of corporate prosecutions.

While we’re discussing Andreessen Horowitz as a corporate entity, this shift in focus could be influencing the current investigation—if attention isn’t on large corporations, the DOJ might be scrutinizing situations like this more closely.