Hedge funds have been fertile ground for pre-IPO tech investments. The path to monetization is more-or-less clear in a late-stage funding round. And those institutions can usually navigate concerns about having cash locked up for a short period of time. Or at least they feel they can when public markets are moving in the right direction. Investing in tech-related venture capital, albeit selectively, can be an easy way to turbo charge portfolio performance.
That proposition is fast turning in tandem with a weak stock market. Risk officers at hedge funds are zeroing in on portfolio liquidity, while the uncertain outlook for IPO prices point to monetization issues. Hedge funds are now less responsive to late-stage opportunities than they have been for some time. By one measure, hedge-fund investment in tech-related venture captial could collapse by more than 50% in 2016 over the previous year.
Silicon Valley should relax. Investment bankers may bemoan losing the placement potential found in hedge funds, but the shift in sentiment ensures a more balanced venture-capital market. Less distortion should translate into stronger funding rounds than would otherwise be the case. ■
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