Andreessen Horowitz is betting on crypto to break up Big Tech power

Andreessen Horowitz, the Silicon Valley venture capital group, is betting on crypto to break up the excessive concentration of Big Tech power that the firm played a prominent role in creating, according to one of its leading partners.

Chris Dixon, founder of Andreessen’s crypto arm, said the internet had led to power being held by a handful of companies including Facebook and Twitter, which the venture capital group backed at an early stage.

“I don’t think any of us expected this level of concentration,” he told the Financial Times’ Tech Tonic podcast. “I don’t think this is a good result, both socially and from a business point of view, because our business invests in entrepreneurs . . . the idea of ​​having the internet controlled by five companies is very bad for entrepreneurs and bad for VCs.”

His comments come as the firm tries to refine a new investment strategy built around cryptocurrencies and digital tokens to replace the traditional equity investments made by VC firms and create a new, community-led model for investing in high-growth startups.

Supporters of the Web3 movement claim decentralization will shift the balance of power away from centralized platforms and towards users.

Critics, however, warn that firms such as Andreessen will use the new technology to create a new generation of Internet gatekeepers.

“The web is just being re-centralized in the hands of a few investors, or in some cases the same exact people who have so much power in the current web,” said Molly White, a software engineer and prominent critic of Web3.

The venture capital firm’s co-founder Marc Andreessen is one of Facebook owner Meta’s longest-serving board members. The firm made $78 million on its initial investment in Instagram when it was acquired by Facebook in 2012, a 300 percent return.

Andreessen also invested $80 million in Twitter before it went public, and was among the financial backers of Elon Musk’s initial bid for the platform earlier this year.

Dixon believes blockchain technology provides protection against anti-competitive activity by building rules into smart contracts written into the computer code.

“Of course, [business people] will try to create monopolies and big businesses and maximize shareholder value, he added. “What we can do to create a better internet is to create new systems where the network effects accrue to society instead of companies.”

Since the crypto fund launched in 2018, Andreessen has raised more than $7.6 billion to invest in cryptocurrencies and related technology companies.

Instead of receiving traditional equity, it has invested in tokens, a form of digital asset built on the blockchain, which can be traded.

“It’s a completely different kind of economic model in Web3 where our investments are mainly in tokens rather than companies,” Dixon said. “And that was a big change. That’s a big part of why we created a separate crypto fund . . . it requires a completely different legal structure.”

Andreessen’s portfolio includes crypto exchange Coinbase, NFT marketplace OpenSea and FlowCarbon, a cryptocurrency credit venture set up by former WeWork CEO Adam Neumann.

Dixon said crypto was an opportunity for new entrepreneurs and start-ups, as companies like Amazon and Google focus on other emerging technologies such as artificial intelligence and virtual reality.

“I haven’t seen any evidence of that [dominant] companies will enter, he added. “We have a much wider space for our start-ups to operate, compared to areas like AI and virtual reality, where the incumbents are making significant investments.”

While cryptocurrency values ​​had been in a gradual decline since the end of last year, the market fell in May following the collapse of the TerraUSD stablecoin. Market instability drove the price of Bitcoin to pre-pandemic levels and contributed to the collapse of a number of crypto lenders and hedge funds.

Dixon said the downturn had made Web3 investment more appealing.

“There are a lot of great entrepreneurs coming into the space, there are a lot of great ideas and the prices are lower,” Dixon said. “In venture capital, you hopefully buy low and sell high . . . so my experience has been setbacks have been opportunities.”

Additional reporting by Jemima Kelly

You can listen to the full interview with Chris Dixon on the FT’s Tech Tonic podcast