Justice Department Investigates Andreessen Horowitz for Conflicts of Interest

The Justice Department has initiated a probe into Andreessen Horowitz (a16z) regarding potential conflicts of interest stemming from its partners serving on the boards of competing companies, as reported by Bloomberg. This investigation has been ongoing for nearly a year and primarily centers on a16z’s board seats at Databricks, valued at $190 billion, and Fivetran, which merged with dbt Labs in June. Co-founder Ben Horowitz is on the board of Databricks, while partner Martin Casado serves on the board of Fivetran.

Several venture capitalists expressed surprise over the inquiry, noting that while Databricks and Fivetran are currently competitors, they were not in direct competition at the time of a16z’s investments, according to an anonymous source familiar with Databricks. Databricks is known for its cloud storage solutions but has increased its focus on AI data pipelines through its Lakeflow product, which overlaps with Fivetran’s core business.

Given a16z’s extensive portfolio, which includes hundreds of investments, it is likely that some startups will shift focus or expand into overlapping markets. While having investments in direct rivals has become more common in recent times, conflicts of interest are heightened when venture capitalists hold board seats at competing firms. Board members typically access more sensitive strategic information than non-board investors.

To manage such conflicts, a partner can resign from one of the boards involved. However, as both Databricks and Fivetran have different individuals from a16z serving on their boards, a16z might establish a “Chinese wall” between Horowitz and Casado to restrict the sharing of confidential information, according to an industry investor.

The investigation references Section 8 of the Clayton Act, a law over a century old that prohibits individuals or entities from sitting on the boards of competing companies. The venture capital sector is closely monitoring this probe, as regulatory scrutiny under this law is rare. If a16z is compelled to relinquish a board seat, it may diminish the perceived value of board commitments from prominent VCs, as founders might fear future conflicts from overlapping portfolios.

a16z has not responded to requests for comment, nor has Databricks or the Justice Department.