We are pleased to announce the closing of Andreessen Horowitz Fund IV, a $1.5 billion multi-stage venture capital fund. We are grateful for the ongoing support of our limited partners and thankful to the many outstanding technology entrepreneurs with whom we’ve had the chance to work over the last five years.

We believe this is an incredibly exciting time to be a technology investor. The ultimate market size that this current generation of tech companies can go after dwarfs that of previous ones.

The obvious reason for this is mobile internet penetration: We’ve gone from an internet population of 55 million users to nearly three billion, and smartphone users are expected to grow from 1.5 billion today to five billion in the coming years. The winners in tech today can become massively larger than those of previous decades because the markets they can sell into are enormous, and growing.

Yet as these markets have grown, the technology costs required to support them have fallen dramatically due to developer productivity tools and cloud-based computing. For enterprise in particular, the advent of SaaS and BYOD has expanded the market opportunity. Why? In previous tech generations, selling to an enterprise required both the support of the end-users of the application and the IT organization. The limiting factor on application deployment for enterprises was the finite capacity of the IT organization, since they would ultimately have to install, support, and manage the applications internally. With SaaS-based applications, however, individual departments within a large enterprise can find and adopt new technologies freed from the constraints of the IT organization’s support capacity.

Entire new enterprise application markets have been created simply as a result of the proliferation of mobile devices and cloud-based computing.

Another important growth trend is industries that previously were not candidates for venture-financed new company formation. These industries are increasingly being impacted as software eats the world, and that’s creating opportunities for expanding the venture capital category. We’ve already seen a number of traditional industries being eaten by software: television (Netflix), music (iTunes, Spotify, Pandora), retail (Amazon), movies (Disney’s Pixar); there will be many more in the coming years. Large, vertical markets — such as healthcare, education, financial services, energy, and even government services — are ripe for technological innovation. We are seeing many of the brightest entrepreneurs looking to transform these industries through software.

But perhaps most importantly, we are seeing many new companies build “full stack” startups (to use the metaphor my partner, Chris Dixon, describes here). Instead of just owning part of the stack — for example, licensing their technology for another company to embed in its end-user product — more companies today are integrating the service, end-to-end and at scale. These entrepreneurs care enough about all aspects of their product/service that they want (or need) to innovate in all the areas that touch it. These companies aren’t just controlling a better end-user experience for their customers — they’re potentially bypassing legacy constraints altogether.

The implication for venture capital in a full stack world is simple: such startups need to master multiple disciplines to fulfill their product visions. (That’s why going full stack isn’t the same thing as being fully vertically integrated; in some ways, it requires technical founders to expand their skillsets more “horizontally” into adjacent areas). To achieve this, however, will require significant amounts of equity capital to invest in multiple domains.

Finally, on top of all of these great demand drivers, the supply side of the venture capital business has changed for the better. Limited partner annual investments into venture capital have averaged around $16-18 billion over the last few years, down precipitously from the $110 billion peak in 2000. At the same time, the number of VC firms has been declining, so the total dollars raised is shared among a smaller number of firms. While such transitions can indeed be painful, this is a positive sign of a professionalizing market — one in which the supply and the demand are in closer equilibrium.

If we are right that software is in fact eating the world, the supply side will grow to meet this demand-side opportunity. In the meantime, however, a more rational balance between the supply of capital and the available means by which to deploy that capital is a sign of a healthy ecosystem and bodes well for venture capital returns.

Once again, we appreciate the trust that our limited partners have placed in us as stewards of their capital, and we look forward to partnering with the very best entrepreneurs tackling the enormous opportunities in front of us.

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