The Justice Department has initiated an investigation into Andreessen Horowitz concerning the firm’s partners holding board positions in rival companies, as reported by Bloomberg.
The investigation, which has been ongoing for nearly a year, zeroes in on the firm’s board memberships at Databricks, valued at $190 billion, and Fivetran, which merged with dbt Labs in June. Ben Horowitz, co-founder of Andreessen Horowitz, is on the board of Databricks, while Martin Casado, a partner, serves on Fivetran’s board.
Several venture capitalists expressed surprise to JS upon hearing about the investigation. Although Databricks and Fivetran are now competitors, they were not direct rivals when Andreessen Horowitz initially invested in them, according to a Databricks investor who requested anonymity. Databricks is primarily recognized for its cloud storage solutions but has ventured into AI data pipelines and application connectors with its Lakeflow product, areas where Fivetran specializes.
As Andreessen Horowitz has invested in hundreds of companies, it is almost unavoidable that some startups might pivot or expand into overlapping markets, thus becoming competitors.
Investing in direct competitors has become more acceptable recently, demonstrated by VCs funding both Anthropic and OpenAI. However, holding a board seat in competing startups presents a more significant conflict of interest, as directors have access to sensitive strategic information not available to non-board investors.
These conflicts could be mitigated by having a partner resign from one of the boards. Yet, since Databricks and Fivetran have different Andreessen Horowitz partners on their boards, the firm could establish a “Chinese wall” between Horowitz and Casado, preventing them from sharing confidential information about the two companies, according to one investor.
The investigation refers to Section 8 of the Clayton Act, a 112-year-old law that prohibits individuals or entities from serving on the boards of competing companies. As this rule has rarely been applied to venture capital, the industry is closely monitoring the DOJ’s probe. If Andreessen Horowitz is required to relinquish a board seat, founders might value board commitments from top-tier VCs less, knowing these investors could be compelled to step down due to future conflicts.
Andreessen Horowitz did not promptly respond to requests for comment, nor did it provide a statement to Bloomberg. Both Databricks and the DOJ declined to comment.
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