Nice-ira: Andreessen Horowitz returns first fund twice over
Silicon Valley firm hits major milestone. … Andreessen Horowitz has returned its debut fund two times over, following news that VMWare (VMW) will acquire Nicera Inc. for more than $1 billion in cash, Fortune has learned.
Context & Ripple Effects
Andreessen Horowitz had already expanded its investing capacity with a $650 million fund and said it could put as much as $100 million into a single company. By 2011, it was also reported to be raising a $900 million third fund, making a realized gain from an early portfolio company especially material to its fundraising case.
First-order effects
- Andreessen Horowitz can tell limited partners that its debut fund has returned twice its capital, with VMware's more-than-$1 billion cash acquisition of Nicera supplying the reported catalyst.
- VMware gains Nicera through a cash acquisition, while Andreessen Horowitz converts a portfolio outcome into evidence of fund-level performance.
Second-order effects
- The fund-level return gives Andreessen Horowitz a concrete realized result to support its push toward larger funds, rather than relying only on the promise of large individual checks.
- Other venture firms seeking large funds face a sharper benchmark: portfolio-company exits must demonstrate that concentrated investments can generate returns across an entire fund.
Third-order effects
- If similarly sized venture funds continue pairing large single-company investments with major exits, fundraising will favor managers able to show fund-level realizations, not simply prominent private-company stakes.
The trend: Venture capital is moving toward larger, more concentrated funds whose ability to raise follow-on capital depends on translating marquee portfolio exits into demonstrated fund returns.