Investors are planning to pour billions more dollars into later stage tech start-ups, even as Japan's SoftBank reels from a succession of faltering bets.
Stephen Schwarzman's Blackstone plans to raise between $3 billion and $4b for its first growth equity fund led by former General Atlantic executive Jon Korngold, people familiar with the discussions said.
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Tiger Global Management, the New York-based group managing close to $11b in hedge funds, last week revealed it would try to raise $3.75b for its next private investment fund in January, according to a document seen by the Financial Times.
The venture capital firms Lightspeed Venture Partners, an early investor in Snap, and Peter Thiel's Founders Fund are also seeking to raise funds for backing private companies that are nearing initial public offerings or takeovers, people familiar with their plans said.
The pace of fundraising will test the demand of large investors, such as pensions and sovereign wealth funds, that have looked to capitalise on a rising tide of private start-up valuations. Each of the groups declined to comment on fundraising.
It's a longer trend, but SoftBank definitely threw fuel on the fire
Michael Larsen, managing director at the investment firm Cambridge Associates, said venture capitalists, hedge funds and other groups have caused a "massive convergence" in the market for late-stage private companies, with more groups than ever prepared to write large cheques.
"More of the prime growth happens in the private years," Mr Larsen said. "Companies are also taking a longer path and achieving more scale."
This year US investors are on track to raise a record amount of capital for growth equity funds, which had gathered $23.9bn by November 11 according to Pitchbook data.
For some, the rush to back start-ups has sparked fears private markets may help hide losses for longer and diminish the pull of public markets.
The property company WeWork was forced to shelve its IPO in September and accept a rescue package from its largest investor SoftBank, which valued the company at less than one-fifth its previous mark. Shares in Uber, another SoftBank investment, have fallen 40 per cent from their May IPO price.
SoftBank chief executive Masayoshi Son recently said the company's second, $108b Vision Fund was on schedule despite questions surrounding the participation of Abu Dhabi and Saudi Arabia's sovereign wealth funds. Together, the two investors contributed 60 per cent of the first Vision Fund's capital.
At the same time, venture-backed companies have raised a record number of fundraising rounds larger than $100m in the 12 months ending September, according to research from Silicon Valley Bank, which labelled the rounds "private IPOs". Private equity groups have participated in 48 per cent of such rounds this year, according to SVB.
"It's a longer trend, but SoftBank definitely threw fuel on the fire," said Bob Blee, head of the corporate finance group at Silicon Valley Bank, adding that many venture capital firms have since raised larger funds to compete.
Lightspeed, based in Menlo Park, California, has discussed raising a growth equity fund as large as $2bn that can invest globally, two people familiar with the discussions said. The group recently hired three partners to help invest in late-stage private companies.
Founders Fund aims to raise $1.5b for its first growth fund next year, said one person briefed on the matter. The Wall Street Journal first reported on Founders Fund's capital raising plans.
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Investors in late-stage private companies typically aim to double or triple their money in three to five years, compared to the 10 times returns venture capitalists usually target over longer time periods.
In a letter detailing its new fund, Tiger Global said it has distributed $7.1b to investors since announcing its latest fund 16 months ago, while calling on $3.5b for new investments. Partial exits from the Indian ecommerce company Flipkart, music streaming service Spotify and e-cigarette start-up Juul contributed proceeds, according to the letter.
Tiger Global said its 11 private investment funds have collectively generated internal rates of return of 24 per cent, after fees, citing a common measure of fund performance.
Miles Kruppa in San Francisco
© Financial Times