Hedge Funds Remain Cool to Tech VC

In the second quarter, most firms previously known for their hedge funds’ activity in the private markets continued to sit out.

Tech Rally

Tech Rally

Hedge funds are still shunning tech-oriented venture capital deals.

In the second quarter, several firms that once were very active in the private markets made only a handful of new investments and several others continued to stay out altogether. This pattern has persisted for two years now as the VC market has all but collapsed, at least among these players.

The reasons are manifold.

Many investors are still spooked by the public tech market sell-off in 2022, which in turn caused valuations of numerous previous private deals to be heavily marked down. It has also become harder to raise money, especially in a much higher–interest rate environment. And VC investors don’t see many opportunities to exit investments with the IPO market slow to revive even as the SPAC market has all but collapsed.

The starkest examples of the new realist are Tiger Global Management and Coatue Management, the onetime standard bearers for tech, internet, and software venture capital investments among firms best known for their hedge funds. Both Tiger Cubs have separate VC businesses, although their hedge funds also often participate in many of the deals.

In the second quarter through June 25, Coatue was the most active firm among this crowd. But it made only 12 new investments in that period. This was more than double the five it made in the first quarter, and far more than the two it made in fourth-quarter 2023, according to the Crunchbase database. In fact, the first-half total of 17 puts the firm on pace to exceed last year’s total of 31. Still, that would be a fraction of the 70 and 170 VC investments it made in 2022 and 2021, respectively, per the VC scorekeeper.

On Tuesday, Norm Ai announced that Coatue had led a $27 million Series A financing round. The company says it has built the first AI platform for converting regulations into computer code.

Tiger Global Management, whose VC arm was doing more than a deal a day just two or three years ago, made just six new private investments in the second quarter. This is one more than in the first quarter and six more than in fourth-quarter 2023, according to Crunchbase.

In 2021 and 2022, Tiger Global was the most active VC investor, making 345 and 289 new investments, respectively, the data firm says. Most recently, Tiger Global participated in the $30.2 million Series A extension round for Hive Technologies, a European operations platform for commerce brands, according to Tech.eu.

Maverick Capital is also poised to exceed last year’s total. Its Maverick Ventures arm did four VC deals in the second quarter and seven in the first half of the year. This compares with just four total last year and 11 in 2022, per Crunchbase.

D1 Capital Partners, however, has all but shied away from the private markets. It did two deals in the second quarter, none in the first, and just five all last year, the data firm reports. As recently as 2021, D1 made 76 VC investments.

Elsewhere, Two Sigma Ventures made two VC investments in the second quarter, half the number as in the previous quarter. It made 14 private investments in 2022 and 32 in 2021, according to Crunchbase.

Many other hedge fund firms previously known for active VC investing sat out the market in the second quarter. They include Whale Rock Capital Management, which hasn’t made a new private investment since second-quarter 2022, Crunchbase’s database reveals. It did 19 deals in 2021.

Other firms that continue to avoid the private markets include Light Street Capital Management, Lone Pine Capital, and Valiant Capital Partners.