DOJ’s Investigation of Andreessen Horowitz’s Board Seat Practices Leaves VCs Puzzled
The U.S. Department of Justice has initiated an investigation into the venture capital firm Andreessen Horowitz regarding potential conflicts of interest involving its partners on the boards of competing firms, as reported by Bloomberg.
This investigation, which has been ongoing for nearly a year, specifically examines Andreessen Horowitz’s board roles at Databricks, currently valued at $190 billion, and Fivetran, which recently merged with dbt Labs. Ben Horowitz, a co-founder of the firm, holds a position on Databricks’ board, while partner Martin Casado is on the board of Fivetran.
Several venture capitalists expressed surprise over the investigation’s revelation. Although Databricks and Fivetran are now seen as competitors, they were not considered rivals at the time Andreessen Horowitz made its investments, according to another investor in Databricks who chose to remain anonymous. Databricks primarily focuses on cloud storage solutions, but has recently ventured into AI data pipelines and application connectors with its Lakeflow product, which aligns closely with Fivetran’s offerings.
Given Andreessen Horowitz’s extensive portfolio, it is almost expected that some startups will evolve or diversify into overlapping markets, potentially turning into competitors.
While having interests in rival firms has become more common in recent times, as seen with various VCs investing in both Anthropic and OpenAI, occupying board roles in competing companies presents a much more significant conflict of interest. Board members typically have access to sensitive strategic information that is not available to other investors.
To manage such conflicts, a partner could step down from one of the boards. However, since members from the same VC firm are on the boards of both Databricks and Fivetran, Andreessen Horowitz can implement a ‘Chinese wall’ between Horowitz and Casado, ensuring they do not exchange confidential information, according to one investor.
The investigation involves Section 8 of the Clayton Act, a law that has been in place for 112 years, which prohibits individuals or entities from serving on the boards of competing firms. As regulators have infrequently applied this rule to the venture capital sector, the industry is closely monitoring the DOJ’s inquiry. If Andreessen Horowitz is compelled to relinquish a board position, it may lead founders to reevaluate the significance of board seats offered by top venture capital firms, especially if potential conflicts related to portfolio overlaps arise.
Andreessen Horowitz did not provide an immediate response to inquiries, nor did it comment to Bloomberg. Both Databricks and the Department of Justice also declined to comment.
