Hedge funds backing out from Silicon Valley?
Mutual funds and venture capital firms were continuing to get pickier with technology startups that they choose to support and back. Now, Hedge funds are beginning to also do the same.
From Bloomberg:
Like VCs, hedge funds are more circumspect because some startups have failed to live up to their billing. Plus, in the wake of several disappointing tech IPOs, many of the most promising firms are choosing to stay private longer, meaning it takes longer to cash out. Investors’ stinginess is forcing startups to cut costs, fire workers and accept more stringent terms when raising money.
Big hedge funds haven’t abandoned the U.S. tech market; they’re just getting choosier. For example, Tiger Global Management, which bills itself as an investment fund with a separate venture arm, made four U.S. investments in 2015, a drop from 12 a year earlier, according to CB Insights. (That doesn’t include Tiger’s big stake in Uber last December, which hasn’t closed yet.)Dragoneer Investment Group backed four U.S. tech startups in 2014 (including Instacart and AIRBNB) and just one last year (Dollar Shave Club), according to CB Insights; in 2014 Valiant backed two (Instacart and Uber) but invested in no U.S. tech companies last year.
Is this a good decision? Why have hedge funds waited until now to be risk averse?
The fact that hedge funds dabble in the startup space at all is beyond me.
hedge funds go wherever there are returns to be made...
I don't know why they don't do more of it. Preferred return on the downside (low risk of losing money) and high upside exposure. Plus they're competing on pricing with VCs who have at the lowest a 20% IRR mandate. It seems like a payoff outcome that would favor the HF.
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