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From Software to AI: The Core of Venture Value Creation
How Technology is Evolving to Stay Central in Venture Capital

By Claire Johnson, Ahria Desai, Rishika Goteti, and Soledad Perez Leon
Overview
In this issue of The Equity Effect, we dive into why technology remains the heartbeat of venture capital. From software’s infinite scalability to AI’s record-breaking funding surge, tech continues to dominate portfolios and redefine the pace of innovation. We explore how scalability, speed, and outsized returns make technology irresistible to investors—and spotlight Andreessen Horowitz (a16z), the powerhouse VC firm shaping the next decade of AI-driven growth.
What’s Inside:
💻 Why Tech Rules VC — Scalability, speed, and power-law returns keep tech at the center of venture strategy.
⚙️ AI Momentum — Funding for AI startups jumped 80% year-over-year, even as overall VC slowed.
🏢 Spotlight: a16z — Inside the $46B firm pioneering a hands-on model and raising a $20B AI megafund.
🚀 The Takeaway — Technology isn’t just another sector—it’s the lens through which all venture bets are made.
Speed. Scale. Software.
When people think of venture capital, they often think of tech. From Silicon Valley’s earliest days to today’s global startup scene, the technology sector and venture capital have consistently had a strong, symbiotic relationship. Not only do technology firms depend on venture capital funding to get off the ground, but they dominate VC portfolios as well. As new innovations emerge, funds evolve by constantly changing their strategies to chase the next breakthrough. In fact, in 2024 almost 40% of VC funding went into technology (CB Insights).
Today, technology is no longer its own vertical: it bleeds into all other industries. There are now AI-powered diagnostics in healthcare to wealth management using fintech, and even climate monitoring tools rely on predictive analytics to make meaningful change.
So why does tech continue to attract such a massive share of venture capital funding? The answer is three-fold: scalability, speed, and outsized returns. Technology startups require less capital to start, while also being able to rapidly scale using software and digital platforms. When they take off, they can deliver exponential growth.
In this issue, we are going to break down why technology remains at the center of modern venture strategy. We’ll explore:
Scalability, speed, and returns: Technology dominates venture portfolios due to its rapid growth cycles and consistent innovation
Spotlight on a16z: A global VC powerhouse that combines massive capital with a hands-on model and bold bets
The Logic Behind Venture Capital’s Tech Dominance

The dominance of technology in venture portfolios comes down to fundamentals: scalability, speed, and outsized returns. Software companies, in particular, have shown that once a product is built, it can reach millions of users at minimal incremental cost, which is a pattern exemplified by Zoom’s ability to expand from tens of millions to hundreds of millions of users almost overnight.. This ability to scale is why digital platforms consistently attract the lion’s share of capital. In 2024, software and AI startups together accounted for nearly half of all global venture funding (Bain). That concentration reflects how investors see software not just as a vertical, but as the backbone of innovation across every industry.
Speed is another defining advantage. Unlike sectors that require long product cycles, software and AI companies can test, iterate, and deploy updates in real time. This rapid feedback loop is attractive for venture capitalists, who want early signals of whether a business model can succeed. While speed is important through all stages, the importance and impact of speed differ depending on the stage. In the earliest stage (pre-seed and seed), speed is critical. Investors want founders who can quickly test hypotheses, gather user feedback, and pivot if necessary. In the growth stages, series A-C, investors still value speed, but it’s now about how efficiently the company can scale rather than just experiment. Software and AI firms can roll out new features or expand to new markets faster than physical businesses, which shortens the path to revenue. In late stages, even mature tech companies need speed to stay ahead of competition or market shifts. Fast iteration cycles enable them to adapt business models, add AI integrations, or respond to new regulatory environments—something traditional industries can’t do as nimbly.The effect is clear in funding flows: global investment in AI startups surged by 80% year-over-year from 2023 to 2024, even as overall venture activity slowed (Barron's). Startups in fintech, health tech, and climate tech that integrate AI or automation are benefiting from this momentum, raising larger and faster rounds than peers without a technological edge.
Finally, technology continues to deliver the power-law returns that define venture capital. A few breakout winners can return an entire fund, and those winners are disproportionately found in software. Deals such as Scale AI’s $14.3 billion valuation and Anduril’s $2.5 billion raise in 2025 demonstrate the scale of bets VCs are willing to make on transformative platforms (KPMG). Even in a more selective funding environment, these kinds of deals illustrate why technology remains the gravitational center of modern venture strategy.
Looking ahead, the interplay between technology and other sectors will only deepen. Healthcare diagnostics powered by AI, climate monitoring tools built on predictive analytics, and fintech platforms transforming financial access all highlight how tech is no longer confined to “tech companies.” Instead, it underpins value creation across industries. For venture funds, this means technology is not just another sector in the portfolio, but the lens through which every sector is evaluated.
Company Spotlight: a16z

Andreessen Horowitz, better known as a16z, was founded in 2009 by Marc Andreessen and Ben Horowitz in Menlo Park, California. Over the past decade, it has become a cornerstone of Silicon Valley’s startup ecosystem, backing unicorns such as Airbnb, Coinbase, Stripe, Roblox, and Figma, as well as IPO successes like Okta and Pinterest (Crunchbase). The firm has also participated in several high-profile exits and SPAC deals, helping shape some of the most influential public market debuts in tech.
Today, it is one of the largest venture capital firms in the world, managing more than $46 billion in assets. Unlike traditional VC firms, a16z pioneered a “platform model, offering founders in-house services in areas such as recruiting, marketing, technical guidance, and go-to-market strategy to accelerate portfolio growth (a16z). This model helps founders scale faster and more effectively, giving them access to world-class talent pipelines, PR and policy experts, and operational advisors who specialize in everything from enterprise sales to fundraising strategy. In doing so, a16z enables early-stage startups to operate with the resources and insight of much larger companies, helping them navigate the path from seed to unicorn more efficiently.
The firm has raised multiple vertical-specific funds, including a $2.2 billion crypto fund launched in 2021 and dedicated Bio + Health and Games funds (CNBC). Most recently, in April 2025, a16z began efforts to raise a $20 billion “megafund” aimed at scaling artificial intelligence companies, which would be its largest vehicle to date (Reuters). This reflects the firm’s conviction that AI represents the next foundational platform shift, similar to the internet and mobile waves of the past. Unlike peers such as Sequoia Capital, Bessemer Venture Partners, and Cossla Ventures, which emphasize conservative capital deployment and portfolio diversification, a16z differentiates itself through an aggressive, ecosystem-style model - offering deep operational support to founders via its 400+ staff of recruiters, engineers, marketers, and policy experts (a16z).
a16z’s portfolio spans across frontier technologies. It has backed industry-defining companies such as Facebook, Airbnb, Coinbase, and Databricks, and more recently has led rounds in AI-native startups like Rillet, an automated finance operations platform, and Salient, which uses AI agents to streamline lender workflows (a16z; a16z). The firm is also in talks to lead a major funding round for Thinking Machines Lab, founded by former OpenAI CTO Mira Murati (Reuters). On the crypto side, its dedicated arm has made high-profile bets on LayerZero and incentivized platforms such as Yupp (The Block).
Not all bets have been without controversy. a16z’s $350 million investment in Flow, Adam Neumann’s real estate startup, drew criticism due to Neumann’s history with WeWork, the coworking giant he co-founded and led until 2019. Neumann was ousted following a failed IPO, governance issues, and allegations of mismanagement and excessive spending, which led to WeWork’s valuation plummeting from $47 billion to under $10 billion within months (Business Insider). Similarly, the firm’s backing of Cluely, a provocative AI startup, has raised questions about its tolerance for reputational risk in pursuit of outsized returns (TechCrunch).
Still, a16z continues to show strong momentum. In 2024, the firm reported that over 40% of its new investments were AI-focused, underlining its strategy to concentrate capital in transformative technologies (a16z). With its combination of capital scale, hands-on founder support, and appetite for bold, sometimes controversial bets, Andreessen Horowitz has cemented itself as a defining force in how VC funds are targeting tech on a global stage. As venture capital continues to evolve toward larger, theme-driven funds and deeper operational involvement, a16z’s model is likely to set the tone for the next decade of innovation. With founders like Mira Murati (Thinking Machines Lab) and Alexandr Wang (Scale AI) leading a new wave of AI-first startups, and breakout portfolio companies such as Character.AI, Databricks, and Rillet shaping trillion-dollar industries, a16z’s aggressive approach signals a future where venture capital isn’t just funding the next generation of technology - it’s actively engineering it.
Podcast of the Week 🎙️
This podcast episode explores how AI Investments are impacting Tech Companies.
That’s a wrap for this week’s edition of The Equity Effect. Technology continues to dominate venture capital, with software, AI, and bold funds like a16z driving the pace of innovation—and reshaping how investors and founders think about scale, speed, and returns.
If this edition sparked new ideas, share it with a fellow founder or investor. And if there’s a tech trend, startup, or VC strategy you think we should spotlight, let us know—we’re always tuned in.
See you next time,
The Equity Effect
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