Hedge funds still avoid venture capital deals in the tech sector.
In the second quarter of 2010, several firms that were once very active on the private market made only a few new investments, while others stayed out completely. This pattern has been in place for the past two years, as the VC market is all but dead among these players.
There are many reasons for this.
Many investors are still scared by the 2022 public tech market crash, which led to a massive reduction in valuations for many previous private deals. It is also harder to raise funds, especially when interest rates are higher. VC investors also don’t see a lot of opportunities to exit their investments, as the IPO market is slow to recover and the SPAC market is all but dead.
Tiger Global Management and Coatue Management are the most striking examples of the new realist. These firms were once the leaders in venture capital investments for technology, internet and software. They are best known for their hedge fund. Both Tiger Cubs are separate VC firms, but their hedge funds often participate in the deals.
Coatue was by far the most active company in the second quarter, from June 25 to the end of the quarter. It made 12 new investments during that time. Crunchbase’s database shows that this was more than twice the five investments it made in the first-quarter and more than twice the two it made during the fourth-quarter of 2023. The firm is on track to surpass last year’s 31 total with the 17 investments it made in the first half. Still, this would only be a fraction compared to the 70 and 170 VC investment it made in 2022, and 2021, according to the VC scorekeeper.
On Tuesday, Norm Ai revealed that Coatue led a $27-million Series A financing round. The company claims to have built the first AI platform that converts regulations into computer code.
Tiger Global Management’s VC arm, which was making more than one deal a week just two or three short years ago, only made six new private investments during the second quarter. Crunchbase reports that this is one more than the first quarter, and six more than the fourth-quarter of 2023.
The data firm reports that Tiger Global was the top VC investor in 2021 and 2022. It made 345 and 289 investments, respectively. Tiger Global recently participated in the $30.2 Million Series A extension round of Hive Technologies, an European operations platform for commerce brand, according to Tech.eu.
Maverick Capital will also surpass last year’s total. Maverick Ventures, the company’s venture capital arm, closed four VC transactions in the second quarter of the year and seven in the first six months. Crunchbase reports that this compares to just four deals in total last year, and 11 by 2022.
D1 Capital Partners has, however, largely shied away from private markets. The data firm reports that it only made five deals last year and did just two in the second quarter. D1 made 76 VC investment as recently as 2021.
Two Sigma Ventures also made two VC investment in the second quarter. This is half of what it did in the previous quarter. Crunchbase reports that it made 14 private investment in 2022, and 32 in 2020.
In the second quarter, many other hedge funds that were known for their active VC investments stayed out of the market. Crunchbase’s data shows that Whale Rock Capital Management has not made a private investment since the second quarter of 2022. It completed 19 deals in 2021.
Light Street Capital Management Lone Pine Capital and Valiant Capital Partners are also firms that continue to avoid private markets.