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 that any of us expected this level of concentration,” he told the Financial Times’s Tech Tonic podcast. “I don’t think this is a good outcome, both societally and from a business point of view, because our business is investing 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 is seeking to hone 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 start-ups.
Proponents of the Web3 movement claim decentralization will shift the balance of power away from centralized platforms and towards users.
However, critics warn firms such as Andreessen will use the new technology to create a new generation of internet gatekeepers.
“The web is just becoming re-centralised in the hands of a small few investors, or in some cases the same exact people who hold 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 $78mn from its seed investment in Instagram when it was acquired by Facebook in 2012, a 300 percent return.
Andreessen also invested $80mn 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 offers safeguards 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 the community instead of to companies.”
Since its crypto fund was launched in 2018, Andreessen has raised more than $7.6bn to invest in cryptocurrencies and related technology companies.
Instead of receiving traditional equity, it has been investing in tokens, a form of digital asset built on the blockchain, which can be traded.
“It is a completely different kind of economic model in Web3 in which our investments are mostly in tokens instead of companies,” Dixon said. “And that was a big change. That is a big part of why we created a separate crypto fund. . . it requires a whole different legal structure.”
Andreessen’s portfolio includes the crypto exchange Coinbase, NFT marketplace OpenSea, and FlowCarbon, a crypto carbon credit venture set up by former WeWork chief executive Adam Neumann.
Dixon said crypto was an opportunity for new entrepreneurs and start-ups, as companies such as Amazon and Google focus on other emerging technologies such as artificial intelligence and virtual reality.
“I’ve seen no evidence of that [dominant] companies will muscle in,” he added. “We have a much wider berth for our start-ups to operate, as 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 late last year, the market plummeted in May after 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 investments more appealing.
“There are a lot of great entrepreneurs entering the space, there are a lot of great ideas and prices are lower,” Dixon said. “In venture capital, you’re hopefully buying low and selling high. . . so my experience has been downturns 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