Andreessen Horowitz, Benchmark and the Transformation of Venture Capital

Three decades ago, five men formed a venture capital firm on Sand Hill Road in Silicon Valley with a simple pitch: Small is beautiful.

Their firm, Benchmark Capital, planned to stick to venture capital’s traditional playbook. It would write tiny checks to invest in private technology companies and help them succeed with guidance and connections. It would resist the urge to become bigger over time. Benchmark’s founders even quoted Voltaire: “God is not on the side of the big arsenals, but on the side of those who shoot best.”

Fourteen years later, two entrepreneurs set up shop across the street with a very different plan. They established Andreessen Horowitz, a venture capital firm that would do more of everything — raise more money, do more deals, make more noise and flash more attitude. Ben Horowitz, one of the firm’s founders, called his creation the “anti-Benchmark.”

Since then, Andreessen Horowitz has expanded in every direction. It created funds focused on cryptocurrencies, defense and other tech, managing a total of $44 billion. It became a registered investment adviser, meaning it could own public stocks and cryptocurrencies. It hired 80 investment partners and opened five offices. It publishes eight newsletters and seven podcasts, and has more than 800 portfolio companies. It recently added private wealth management services. There are persistent rumors that it will go public.

Benchmark, on the other hand, has hardly budged. It still has five partners who make investments. This year, it raised a new $425 million fund, which is roughly the same size its funds have been since 2004. Its website is a single landing page.

The gap between the two firms — one clinging to venture capital’s traditional model and the other aggressively not — underscores the profound divergence in the industry that funds and fosters American innovation. As venture capital grew and Sand Hill Road took on the same mythological proportions as Wall Street, many top venture firms followed Andreessen Horowitz’s lead by supersizing. That propelled venture capital out of its longtime finance niche, turning it into a $1.2 trillion juggernaut last year, from $232 billion under management in 2009.