With late stage tech companies staying private longer and raising more capital at higher valuations than at any point in recent memory, it’s little surprise that there’s a new class of investor proving hungry for these deals. Traditional public market investors like hedge funds, mutual funds, and banks have been prolific in snapping up pieces of many of the hottest companies in Silicon Valley.
One of the lesser known firms in this set – an obscurity that is most certainly by design – is Coatue Management, a 15-year-old New York-based hedge fund. A little over a year after launching a $300 million Valley-focused fund and the firm has already bagged shares in Box, Snapchat, HotelTonight, Lyft, Anaplan, and Avvo, among others.
Coatue Senior Managing Director Thomas Laffont took a step toward pulling back that kimono, if only slightly, by joining Sarah Lacy on the Southland stage (Coatue was also an event sponsor). The two discussed the state of tech valuations, the IPO market, and who exactly is this secretive new firm with the big checkbook.
“Nobody really wants to read about hedge funds,” Laffont says, explaining his firm’s typical silence. “At the end of the day we want [our great companies and great entrepreneurs] to be storytellers, and to the extent we can enable them to do that, in the end, that’s what we care about… Want the deals that we do to speak for themselves in the long run.”
As for the decision to shift Coatue’s investment focus downstream, Laffont points to a shift in the liquidity timeline of these leading private tech companies. Thus, if the firm wants to play in this market it needs to look at private deals. But at the same time, if the firm wants to be an informed public market tech investor, it would be well served to have an intimate understanding of what’s going on in the private market. In that way, the two arms of Coatue’s business serve one another.
“In 2007 through 2012, Google’s stock was down almost 30 percent,” Laffont recalls. “What happened? The public market was digesting the impact of Facebook’s business on Google.”
He continues, “Ironically, the best thing that ever happened to Google’s stock price was Facebook going public. If you look at how Google’s performed, it’s now at an all-time high… The Facebook IPO demystified a bit of what Facebook was doing. They were very clear that they weren’t trying to build another search engine.”
So what does this mean for Coatue. Put simply, that if the firm wants to be an informed public investor in the Googles of the world, then it needs to understand what the (still private) Facebooks of the world are up to. Hence the dual-market investment strategy.
“We want to make sure that, in the same way we want the companies we invest in to be forward looking, we want to make sure we can build the best tech investment platform,” Laffont says. “And to not have access to these companies, we felt would put us at a disadvantage over time”
View the full interview below: