A16z's new $1.1B fund admits hardware is eating the world, too

Andreessen Horowitz (a16z) has unveiled a new $1.1 billion fund, titled the Machine Age Fund, which indicates a growing emphasis on hardware investments, particularly in AI infrastructure. The firm's general partners, Martin Casado and Raghu Raghuram, will spearhead this strategy, targeting early-stage and growth-stage companies involved in data centers, robotics, and home AI appliances.

This initiative marks a significant shift for a16z, as hardware investments are typically less favored due to the high capital costs, lengthy build cycles, and thinner profit margins associated with the sector. However, recent advances in physical AI have made it possible for hardware to achieve capabilities previously deemed unattainable.

Hardware startups now account for over 20% of a16z's deal flow. Examples of successful AI hardware investments by a16z include Nexthop AI, a startup developing network switching equipment for AI workloads, and Mind Robotics, an AI robotics company spun out of EV manufacturer Rivian. In the defense sector, a16z has been an early investor in companies such as Skydio, a self-flying drone startup, and Shield AI, which builds software enabling jets and drones to operate autonomously.

This new fund aims to provide an avenue for risk hedging, as investors seek to protect themselves against potential disruptions caused by advancements in large language models (LLMs) that could potentially undermine the value of certain AI software companies.