US Justice Department probes Andreessen Horowitz over board seats in rival startups — and VCs are baffled

The U.S. Department of Justice has launched an investigation into venture capital firm Andreessen Horowitz (a16z) over its partners serving on the boards of competing companies, Bloomberg reported. The probe, which has been running for nearly a year, focuses specifically on board seats held by a16z at two portfolio companies: Databricks, valued at $190 billion, and Fivetran, which merged with dbt Labs in June.

The conflict arises because Ben Horowitz, co-founder of a16z, sits on the board of Databricks, while partner Martin Casado serves on the board of Fivetran. These two companies are now direct competitors: Databricks, best known for its cloud storage and data analytics platform, has expanded into AI data pipelines and application connectors with its Lakeflow product — a move that directly encroaches on Fivetran's core business.

Several venture capitalists told TechCrunch they were surprised by the news of the investigation. According to an anonymous Databricks investor, the two startups were not rivals at the time a16z made its initial investments. However, given that Andreessen Horowitz has backed hundreds of companies, it is almost inevitable that some of its portfolio firms will eventually pivot or expand into overlapping markets, turning into competitors.

While funding direct competitors has become more acceptable in recent years — as evidenced by the many VCs that invested in both Anthropic and OpenAI — holding a board seat at competing startups creates a far greater conflict of interest. Board directors are typically privy to much more sensitive strategic information, including future product roadmaps, financial details, and acquisition plans, than non-board investors ever see.

Such conflicts are usually resolved by having a partner step down from one of the boards. However, the situation at a16z is complicated by the fact that different individuals from the firm serve on the Databricks and Fivetran boards. This means the conflict is not about a single person having access to proprietary information from both companies, but rather about the firm as a whole potentially benefiting from privileged insights across competing startups.

The DOJ's investigation signals growing regulatory scrutiny of venture capital firms and their governance practices, particularly when it comes to interlocking directorates in the tech industry. The outcome could set a precedent for how VCs manage board seats in an era where startups frequently pivot into adjacent markets, blurring the lines between portfolio companies.