Investor Highlight: Coatue Management & Hedge Fund VC

The term "hedge fund" wasn’t a term I was used to seeing outside of New York real estate headlines (“Following $33 Million NYC Buy, Hedge-Funder Spends $39.5 Million on North Palm Beach Mansion”) and outside of bedtime, where I read about white-collar criminals creating support groups. Lately, however, hedge funds are leading private company investments with outsized valuations (part of why we might be entering Tech Bubble 2.0). One hedge fund that stands out is Coatue Management, the New York-based hedge fund which reportedly gained 65% in 2020 (pandemic, who?) and paid its manager, Philippe Laffont, $1.6BN for his results.

Less means more
Companies are taking longer to go public due to the onerous task of going public (oh the level of compliance!) coupled with the increased levels of available cash from private company investors. This dynamic results in fewer companies on the public exchange and therefore less opportunity for hedge funds to make profits on public stocks. Hungry eyes from the Philippe Laffonts of the world have thus been turning to private equity to get in early and hopefully reap some huge rewards later. Cases in point have been Roblox's, Snowflake's, & Palantir's wildly successful exits.

Bigger means Better?
Alternative VC investors such as Coatue Management are swinging the pendulum towards valuations that are higher and higher, often paying 50-100% over the valuations offered by traditional VCs. However, while founders gain larger account balances, they lose invaluable partnerships and mentoring from working with VC investors knee-deep in the startup world. They also might not benefit from scaling responsibly and slowing, instead turning that $72MM Series B into 250 new employees or sparkly office space overnight, before they have proven themselves to their customers or risen to a challenge against a competitor.

Still, in a competitive landscape where founders have the advantage, big checks continue to garner a rapid succession of investments. For Coatue Management, these investments include:

• Workstream Technologies, an app that streamlines sourcing and onboarding hourly workers.

• Postman, a developer tool for API. 

• Reify Health, which improves access and success in clinical trials.

For more, check out Coatue's investor profile here.