It’s worth revisiting when venture capital must write down unrealized gains. A few common triggers include when a startup’s latest funding rounds yields a lower valuation, if it goes bankrupt, or if there is a decline in the share prices of its peers in the public markets.
Out of self-interest, top-tier venture capital funds have recently been urging startups to tighten their belts. With layoffs and other cost-cutting measures, cash already raised can last longer. That means startups do not have to begin a new funding round and put their investors’ portfolio value at risk. In other words, the Nasdaq can be in a bear market, but the knock-on effect to real businesses may not arrive until months later.
By the same token, a VC fund can always argue its start-ups are so niche that there are no peers in public markets. This is especially true if it invests in early-stage companies or cutting-edge technologies, such as nuclear fusion. Already, Tiger has pivoted its strategy—the latest fund will focus more on very young companies.
Meanwhile, with the stock market changing so fast, tech might be back in fashion in no time. In mere days, public market narratives have shifted from inflation to recession. There is now talk of the Federal Reserve’s preferred inflation measure cooling, and even a possible rate cut in 2023. This would be music to tech investors’ ears
Who knows? Scott Shleifer, who runs Tiger’s venture business and has amassed a fortune from it, may just get even wealthier. While traditional managers are nursing their wounds, the judgment day for crossover funds—industry jargon for hedge funds that also do venture capital—may never come.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron’s. She is a CFA charterholder.