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If you invest in startups, you hear two names all the time: Tiger and Coatue.
Both are giant hedge funds that have poured money into venture capital in recent years. Oddly enough, they’re based in the same building in midtown Manhattan, a few miles from where I sit.
Tiger Global Management LLC and Coatue Management LLC collectively run almost $150 billion, dwarfing even the largest venture funds. Through the last few years of the bull market in tech, they’ve pointed a firehose of cash at startups.
Tiger, Coatue and other hedge funds put eight and nine figure checks into late stage companies at an incredible pace. They generally do little diligence and can close deals in a matter of days.
When all tech stocks did was climb, this playbook worked great. But now that tech shares are retreating, Tiger, Coatue, and other hedge funds with similar strategies are taking a hit.
Tiger was down 15% in January alone, a major drop for a single month. It was also down for the full year in 2021. Coatue lost 4% in January.
Keep in mind that investments in startups are mostly illiquid and usually get repriced only when the company raises more funds. This happens every 12-18 months on average.
So Tiger and others could be looking at big writedowns in the future on their private portfolios, in addition to the losses they’ve already taken in publicly traded tech stocks.
This all began in public markets. Big tech companies like Block, Coinbase, Robinhood and others lost half or more of their value.
The next tech companies to be hit were the late stage startups. Tiger has already begun renegotiating investments in startups to lower valuations.
This reduction in valuations for late stage companies is beginning to affect the early stage as well.
Just this morning, I saw a large seed round reprice at about 15% below the valuation just three days ago despite no change in fundamentals. Ouch.
So what should early stage investors like me do? Keep investing in great companies and smile when the valuation is less than it would’ve been 6 months ago. 🙂
Tech companies are still rapidly innovating and growing. Regardless of market turmoil, you want to be a part of that.
It’s still the hottest game in town.
Have a great weekend everybody! 🥳
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