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

A report by Bloomberg reveals that the Department of Justice is looking into the venture capital firm Andreessen Horowitz due to its board positions in rival AI companies, creating uncertainty among venture capitalists, as noted by TechCrunch.

In the most recent episode of the Equity podcast, hosts Kirsten Korosec, Sean O’Kane, and I shared our surprise over this revelation. As Kirsten pointed out, while conflicts of interest among VCs are crucial, “Of all the issues the DOJ could prioritize, why is this one so prominent?”

The news caught many off guard, especially considering a16z’s ties to the Trump administration and their relatively muted response to this investigation. This is markedly different from the Biden administration, where, as Sean observed, “even small policy adjustments, particularly regarding crypto, provoked significant discussions.”

Sean suggested that this investigation might act as a cautionary tale for smaller firms in the venture capital space.

Read on for a refined excerpt from our discussion, clarified and condensed for conciseness.

Kirsten Korosec: Your insights are particularly significant here, Anthony, considering your experience at a VC firm, unlike Sean and I, who primarily report on the sector.

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

Learning about Andreessen Horowitz’s board positions, especially related to their competitors, greatly influenced my viewpoint.

I was genuinely shocked, in line with many other VCs who were equally taken aback. Although I’m not a legal authority and didn’t deal with legal matters at my previous firm, it’s apparent that there are conventions—and reportedly laws—regarding board memberships in competing startups, which are not consistently enforced.

Founders generally dislike having a representative from their primary competitor on their board. However, many startups undergo frequent pivots. An investment in one company could suddenly find itself in competition with another as industries shift—especially in light of the current surge in AI. This backdrop makes the DOJ’s year-long investigation puzzling, especially with the wider ramifications it could invoke.

Kirsten: In this context, we see Ben Horowitz on the Databricks board and Martin Casado on the Fivetran board. To your earlier point, during this AI expansion, many companies are pivoting to enter the AI space or specific niches. With a16z’s broad portfolio and numerous board roles, it’s understandable how these conflicts could emerge.

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

Sean O’Kane: I’m interested to see if this leads to any significant changes. What if we started a venture that included AI on boards without conflicts of interest? Let’s make that happen.

Indeed, this scenario is unusual for multiple reasons, and I was curious about the specifics when I first encountered the headline.

Let’s step back for a moment. Bloomberg reported that this investigation has been ongoing for almost a year, initiated during the Trump era. Executives at Andreessen Horowitz have established ties to Trump and occupied various roles within his administration.

Despite the previous administration’s attention on antitrust matters, meaningful actions have been sparse. They settled with Live Nation without addressing the Ticketmaster issue, a clear indication of unmet expectations.

The Justice Department should function autonomously and not be leveraged as a political tool. Nevertheless, it’s intriguing to observe their focus on this issue while being closely tied to the current administration.

I’ve come across instances involving Andreessen Horowitz that raised my eyebrows. Two years ago, we detailed Ben Horowitz facilitating connections between his portfolio startups and the Las Vegas police, which appeared to present a more dubious competitive nature than the present investigation, seemingly arising from business dynamics.

Unlike their vocal reactions during the Biden administration regarding minor policy adjustments, particularly in crypto, Andreessen Horowitz has remained notably quiet this time—prompting questions on whether they are responding to legal counsel or if something more severe is at play.

Anthony: From the DOJ’s standpoint, without getting into political controversies, there’s apparent uncertainty regarding the department’s politicization. This amplifies the surprise of discovering such a substantial investigation involving a presumed ally of the Trump administration.

One final note: the length of this investigation is truly remarkable. If it were merely about a few board positions, a quick resolution would seem logical. This implies that more is occurring, leading to serious inquiries. Otherwise, what justifies the prolongation of the process?

Kirsten: I believe two potential realities might exist concurrently. The DOJ could be experiencing a slow investigative process while also uncovering a significant issue. While it’s unwise to speculate excessively, their hesitance could indicate they’re following legal guidance, which may point to deeper concerns.

I wonder: how will this influence other VC firms? Are they paying attention, or do they perceive this as an isolated incident and proceed with business as usual, securing board roles without regard for competitive conflict?

Sean: That’s an important inquiry. If this situation has indeed engaged the antitrust division, the DOJ may be looking to set a precedent with Andreessen Horowitz rather than immediately targeting smaller rival firms. This approach could encourage greater caution among those smaller entities.

Moreover, it’s essential to recognize that the current administration has predominantly shied away from taking action against public companies. Both the SEC and the DOJ have emphasized individual accountability in contrast to corporate prosecutions.

While we’re discussing Andreessen Horowitz as a corporate entity, this shift in focus might be influencing the current investigation—if the spotlight isn’t on large corporations, the DOJ may be paying closer attention to scenarios like this.