T. Rowe Price’s New Horizons Fund, which has backed Twitter Inc. and LendingClub Corp., among others, has disclosed investments in only two deals this year, compared with 14 last year. With valuations skyrocketing, the private asset class is “scary,” T. Rowe fund manager Henry Ellenbogen, who oversees almost $19 billion in assets, told Bloomberg earlier this year.
’Geographic Arbitrage’
Another strategy: Avoid Silicon Valley startups. Low- profile companies based elsewhere aren’t as often targets of heated competition among venture capitalists eager to invest, which drives up valuations.
“You can do a little bit of a geographic arbitrage,” said Artiman’s Wilson. His last deal was in Tennessee.
Accel has been investing in startups in Provo, Utah, and Montreal, for instance. Accel also looks for firms that have strong business models but haven’t yet taken venture capital, such as Provo’s Qualtrics, an online-survey provider.
Some investors still have scars from the dot-com bust more than a decade ago. Wesley Chan, an early Google employee who is now a partner at Felicis Ventures, said he had four roommates in a month because the startups where the people worked kept closing and they had to move home. He now only invests in companies that can withstand a downturn, focusing on startups that build key services to businesses.
“I’m absolutely paranoid,” Chan said. “The music is going, but if it stops will you have a chair to sit on?”