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Hedge funds increasingly betting on tech- report

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January 20
7:24 AM 2014

More hedge funds are betting on technology startups for the past two years, TechCrunch reported. One of the latest to invest in a tech firm is Coatue Management, a hedge fund based in San Francisco, which backed Snapchat's $50 million funding round, the report said.

Coatue, however, is not the first hedge fund to cross the public markets to make investments in private companies and back technology firms. In the 1990s, Integral Capital Partners which was established by Roger McNamee and John Powell was one of the first to start the trend. In more recent times, Tiger Global's venture arm has been making investments in technology companies like Warby Parker, Redfin, Nextdoor, Eventbrite and Pure Storage, the report said.

For Coatue, this is not the first investment it has made in a mid-stage private company. It set up a $300 million growth fund in 2013 specifically to invest in tech and in September, the fund became the lead investor in the $45 million round held by mobile travel startup Hotel Tonight. Coatue was also an investor in the 2012 funding round of Box, the report said.

Other hedge funds are also investing in private technology companies lately. In recent years, Altimeter has been supporting private tech firms while peer Valiant Capital Partners has supported Evernote, Dropbox and Pinterest in the last couple of years. Last year, Maverick Capital became a seed investor in Zenefits and other firms. It also backed the seed round of beacon developer Estimote, the report said.

Citing an investor, the report said hedge funds are looking at the possibility for getting more returns by making investments in private markets. This is mainly due to the fact that tech firms are taking their time before going public. Before, private firms went public when revenues reached $100 million. They would then go public and utilize the funds to grow internationally. Now, however, tech startups are getting this revenue and already posting international growth, the report said.

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