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Tech Venture Capital Community Views Hedge Fund Money As Impatient, Unsupportive, Scary, Devil-Esque

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As those of you've been paying very careful attention may have noticed, Wall Street is pretty into tech these days. Morgan Stanley is underwriting every single IPO available, Goldman Sachs has money in Mark Zuckerberg's poking machine and LinkedIn is making Jim Cramer's head explode. Hedge funds, however, want more. While Peter Thiel famously invested in Facebook way back when, and Tiger Global has poured cash into a whole bunch of sites, the industry as a whole wants a piece of these companies and not just after they become (alleged) successes.

A handful of hedge funds already had a history of such investments, but the activity has increased recently as investors try to cash in on the surging valuations of Facebook Inc., LinkedIn Corp., Zynga Inc., Groupon Inc. and a smattering of smaller companies...In the past 12 to 18 months, firms including D.E. Shaw & Co., Maverick Capital, Brookside Capital and Tudor Ventures, as well as hedge-fund investor James Pallotta, have joined Tiger in putting more money into promising yet risky tech companies. Starting last summer, Tiger began ramping up its investments in private companies in India, China, Brazil, Russia and other emerging markets. This year alone, it has invested in six Indian start-ups, including consumer electronics retailer, online fashion site, and online bookseller Flipkart...Edward Lampert, the hedge-fund investor who controls Sears Holdings Corp., has become interested in private tech companies too. He recently assigned Daniel Levine, an analyst at his hedge fund, ESL Investments, to look for opportunities.

Sounds great, right? Well it would be except for the fact that some people are apparently too good for hedge fund money. Despite the fact that the firms are willing to throw hundreds of millions at them and open doors to sophisticated investors, these people are "suspicious" and skeptical of what hedge funds want and what their intentions are and whether or not they are literally the devil.

Kevin Hartz is the chief executive of EventBrite Inc., an online ticket seller that announced a $50 million investment by Tiger in May. He says that he and other Silicon Valley entrepreneurs are by nature suspicious of money that comes from outside the Valley...The inflows are...pushing the already frothy valuations of some companies even higher and rattling the clubby venture-capital scene. Hedge funds have typically invested in ventures that they can sell at a moment's notice, while venture-capital firms are known for advising start-ups and taking a longer-term view. "Hedgies investing in start-ups directly is scary," says Jeff Clavier, founder of SoftTech VC, a small but influential seed-stage venture firm based in Palo Alto, Calif. "They are the antichrist of patient, supportive early-stage investing."

Buhh, what? 1) It sounds like you meant to say "antithesis" but had a telling little Freudian slip there, Jeff and 2) Not patient? Not supportive? Excuse you? You don't know from patient and supportive. Eddie Lampert has plans to personally carry new ping-pong tables that he picked up himself at Sears, along pretzel kegs and frozen pizzas, up the 5th floor walkups of the start-ups lucky enough to be on the receiving end of his capital. David Shaw is on hand to unclog toilets. Biff Basness will cook you dinner and tell you your ideas are great (while stifling the urge to tear you a new asshole, which shows growth). Should SAC get in on this, you can rest assured Steve is available for middle of the night emergency roadside assistance, pep-talks, tear-wiping, handholding and back-rubs. You should be so lucky.

Hedge Fund Investors Scout Out Web Firms [WSJ]



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