In 2013, tech investors could expect an average return of 160 percent from the last private fundraising round to IPO, according to data compiled by Irving Investors from BVMarket Data. In the second half of 2015, the average return fell to 29 percent.
Big hedge funds haven’t abandoned the U.S. tech market; they’re just getting choosier. For example, Tiger Global Management, which bills itself as an investment fund with a separate venture arm, made four U.S. investments in 2015, a drop from 12 a year earlier, according to CB Insights. (That doesn’t include Tiger’s big stake in Uber last December, which hasn’t closed yet.)
Dragoneer Investment Group backed four U.S. tech startups in 2014 (including Instacart and Airbnb) and just one last year (Dollar Shave Club), according to CB Insights; in 2014 Valiant backed two (Instacart and Uber) but invested in no U.S. tech companies last year.
“It’s not a liquid asset class,” said Ilan Nissan, a partner at Goodwin Proctor that advises hedge funds and venture capital funds. “You need to be willing to sit there and not be able to mark it everyday and know what your position is worth. As IPO markets go sideways, it makes sense that they’d be shying away from that asset class.”