Dose of Prose

Hey Style Prose readers,

I started discussing more biz related current events on my Insta stories and based on the positive feedback I received, it seems as though you all find interest in these things….which brings me to today’s blog post. A few weeks ago, I began this series called “Trade Talk,” where basically I discuss topics related to things in the finance world, specifically trading and investing. If you haven’t read my post about insider trading, check it out here. Consider today’s post as a continuation of this series, but this time, the focus is all about venture capital!

I’ve mentioned this before, but for those who don’t know, my career interest is venture capital, which is essentially a type of financing that a small business or startup receives from investors. Overall, I want to play a role, financially or legally, in assisting entrepreneurs transform their ideas into products, with the ultimate goal of helping to fund and grow businesses, specifically those owned by people of color.

Since I want to work in this industry, I try my best to follow it and keep up with current events. Today’s topic specifically is about this VC firm called Andreessen Horowitz (A16z), well, I should say it used to be a VC firm…now it is legally registered as a financial advisor! Why? Because of its commitment to cryptocurrency.

Let’s backtrack for a bit and I’ll give you some context. As I explained before, VC funds provide financing to small, early-stage companies. The Securities and Exchange commission (SEC), is an independent Federal agency that aims to regulate the securities industry in order to protect investors. The goal of the SEC is essentially to maintain fair, orderly and efficient markets. What does this have to do with VC? Well, the SEC places a limit on how much a VC fund can commit to investments that the SEC deems high risk. In other words, legally speaking, VC firms are limited in terms of the type of companies they can invest in, including real estate, publicly traded companies and cryptocurrency, which is a market that A16z is particularly interested in. In order to avoid exceeding this 20% investment cap that the SEC put in place, A16z is now becoming a registered investment advisor (RIA). By making this switch, A16z can invest in a variety of markets where many VC’s face legal limitations.

I’m sure your next question is…so what? Why is this important? Well, by registering itself as a RIA, A16z is completely reshaping the traditional VC model; thus, driving up its cost structure. Furthermore, other VC firms (ie. SoftBank) are starting to follow suit. Ultimately, the ability for VC firms to seek opportunities to expand their investments beyond the typical VC type deals is game changer that could cause the VC model itself to restructure entirely. Additionally, becoming an RIA has its share of risks, including a complete lack of privacy as well as expenses associated with compliance fees.

Five years ago, I had the opportunity to visit A16z and learn all about the VC world and the players involved, so reading the news about the firm leaving VC behind definitely peaked my interest and I had to share it on my blog. What’s next for A16z? Well, besides the recent launch of its $350M crypto-dedicated fund called a16z crypto, I’m sure there’s more on the horizon. We’ll just have to wait and see. As always, I would love to hear your thoughts on this. Do you think registering as a RIA is a smart move for VC firms? What does the future hold for the VC model overall? Let’s discuss.

See you next week,

-Kaamilah